In the spreadsheet CapitalBudgting, you find cash flows of projects A and B. Use the data to answer the following questions:

(a) Given the cash flows of Projects A and B and a 9% cost of capital, compute NPV, IRR, Profitability Index, and Payback Period for both projects respectively. Decide which project(s) to invest if

A and B are independent

There is a shortage of funds (capital rationing)

A and B are mutually exclusive

Discuss the criterion or criteria used to make the decision.

(b) Compute crossover IRR

(c) Create the NPV profile table and plot NPV profile for both projects. In the figure, indicate the crossover IRR computed from (b). Discuss under what situation NPV and IRR will give the same conclusion, and under what situation NPV and IRR will give different conclusions.

Cost of capital 9% Difference in Project A $5,000 $1,200 $800 $2,000 $2,000 $2,000 Project B $5,000 $4,000 $1,000 $700 $700 $500 Cash Flow A-B Cumulative Cash Flow A Cumulative Cash FlowB Year 0 1 4 NPV IRR Profitability index Payback period in years Crossover IRR Payback period No. of years before first positive cumulative cash flow+(absolute value of last negative cumulative cash flow/cash flow in the year of first positive cumulative cash flow