CASE 2 (30 points)

Consider the data for the following two projects, Beta and Zeta:

Year Cash Flow (Beta)

0 35,000 1 17,000 2 14,000 3 12,000

Cash Flow (Zeta)

36,000 18,000 15,000 13,000

Instructions:

1. Using company cost of capital 12%, calculate the following investment criteria for both projects:

1. Payback period

2. Net Present Value (NPV)

3. Internal Rate of Return (IRR)

4. Profitability Index (PI)

(5 points) (5 points) (5 points) (5 points)

2. If projects Beta and Zeta are independent, which one(s) will you choose? Why? 3. If projects Beta and Zeta are mutually exclusive, which one will you choose? Why