Division (Show all calculations, no excel)

Your division is considerin two projects. The WACC is 10%, and the projects' after-tax cashflows (in millions) would be as follows:

Year Project A Project B

Y0 -R30 -R30

Y1 5 20

Y2 10 10

Y3 15 8

Y4 20 6

Required:

a) Calculate the projects NPVs, regular payback and discounted paybacks (10)

b) If the two projects are independent, which project(s) should be chosen (2)

c) If the two projects are mutually exclusive, which project should be chosen and why?

d) ID it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer

e) Now look at the regular and discounted paybacks. Which project looks better when judged by the payback?