CASE 2 (25 points)

The treasurer of Azzie Corporation has projected the cash flows of Projects A and B as follows:

	Cf0	CF1	CF2	CF3
project A	570,000	340,000	200,000	320,000
project B	570,000	220,000	360,000	400,000

The relevant discount rate is 12 percent. The company imposes a payback cut-off of three years for its investment projects.

Instructions:

1. If these two projects are independent, which project(s) should Azzie accept based on:

a. The Payback rule? Explain. (5 points) b. The Profitability Index rule? Explain. (5 points) c. The IRR rule? Explain. (5 points) d. The NPV rule? Explain. (5 points)

2. If these two projects are mutually exclusive, which project should Azzie accept? Explain. (5 points)