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

3,000

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	Less than Firm Average Risk	8%
Average	Risk equal to Firm Average Risk	9%
Above Average	Higher than Normal but Not Excessive Risk	10%
Highest Risk	Extremely High Risk	15%