Heroes Corporation is considering two mutually exclusive investment opportunities: Project A

and Project B

Project A will require a capital outlay of $$10500000$ and is expected to have a salvage value of

$$500000$ at the end of year $5.$ Project$$s B capital outlay and expected salvage value at the end of

year $5$ are $$12450000$ and $$700000$ respectively.

The finance team projects the following cash flows:

Heroes Corporation Project Estimates

Years Project A Project B

$1$ $$3000000$ $$4000000$

$2$ $$4500000$ $$4000000$

$3$ $$4500000$ $$4000000$

$4$ $$4000000$ $$4000000$

$5$ $$3000000$ $$4000000$

Heroes Corporation cost of capital is $12\%.$ As the financial analyst for the firm, management

would like you to provide answers to the following questions at the next board meeting:

A$.$ Differentiate between mutually exclusive projects and independent projects.

$(5$ marks$)$

B$.$ How long will it take Heroes Corporation to recover its investment for each project?

$(5$ marks$)$

C$.$ Based on your calculations above which project$($s$)$ would you recommend the firm accept

and why? $(3$ marks$)$

D$.$ Assume the use of the net present value technique, would either or both projects be

acceptable and why?