Illustration 1. A firm is evaluating two mutually exclusive projects that are projected to have these cash flows: Initial investment CFs of Project A, SI -90,000 CFs of Project B, $ -170,000 Year 1 40,000 75,000 Year 2 40,000 75,000 Year 3 40,000 75.000 3) See illustration 1, if the firm requires a discounted payback period of 3 years or less and the firm's annual cost of capital is 5%, the firm should a) accept both projects b) accept Project A and reject Project B c) reject Project A and accept Project B d) reject both projects 4) A firm is evaluating an investment proposal that has an initial investment cost of $5 mill. and promises $500,000 per year in after-tax cash inflows for 14 years thereafter. If the annual cost of capital is 7%, the net present value of this investment is a) $627,266.01 b) $4,372,733.99 c) $9,372,733.99 d) - $627,266.01 5) What is the NPV of a project, if the initial investment is $15 mill., firm's weighted average cost of capital is 11% per year, and the project is expected to provide after-tax operating cash inflows of $2 mill in year 1, $2.9 mill in year 2, $3.3 mill. in year 3, and $1 mill. in year 4? a)-$5.8 mill. b) $22.23 mill. c)-$7.77 mill. d) $7.77 mill. 6) A firm is evaluating three mutually exclusive capital budgeting projects. The net present value of each project is shown below. Given this information, which project(s) should the firm accept? Project 1 100,000 Project 2 10,000 Project 3 -100,000 NPV, $ a) accept Projects 1 and 2, and reject Project 3 b) accept Projects 1 and 3, and reject Project 2 c) accept Project 3, and reject Projects 1 and 2 d) accept Project 1, and reject Projects 2 and 3 7) What is the profitability index of a project that requires an initial investment of $50 mill. and promises cash inflows of $10 mill. per year for the next 10 years, if the annual cost of capital is 10 percent? Note, the firm is using the following formula: Profitability Index = (NPV/Initial Investment)*100 a.) 22.89% b) 0.23% c) 100% d) 118.18%