Capital Budgeting Project Selection Assignment For the following two projects, determine the Payback Period Discounted Payback Net Present Value Profitability Index (Benefit-Cost Ratio) Internal Rate of Return Modified Internal Rate of Return Project A Project B Year Net Income Cash Flow Net Income Cash Flow 0 (10,000) (10,000) 1 7,000 9,000 1,000 2,000 2 1,000 2,000 9,000 10,000 Note that Project A is a Below Average risk project while Project B is of Above Average risk. Assume your firm is in the 40% tax bracket, and that your cost of capital is 9%. The firm adjusts its projects with risk adjusted discount rates to account for project risks. The risk schedule applied is as follows: Risk Class Description RADR Below Average Average Less than Firm Average Risk 8% Risk equal to Firm Average Risk 9% Above Average Higher than Normal but Not Excessive Risk 10% Highest Risk Extremely High Risk 15%