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			$(15,000)			$(19,000)
1		$5,000	$6,000		$3,000	$4,000
2		$5,000	$6,000		$5,000	$6,000
3		$5,000	$6,000		$7,000	$8,000
4		$5,000	$6,000		$11,000	$12,000

Note that Project A is a Highest risk project while Project B is of Average risk.

Assume your firm is in the 40% tax bracket, and that your cost of capital is 13%.

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	Less than Firm Average Risk	11%
Average	Risk equal to Firm Average Risk	13%
Above Average	Higher than Normal but Not Excessive Risk	15%
Highest Risk	Extremely High Risk	19%