Leung Corporation is considering investing in two different projects. It could invest in both, neither, or just one of the projects. The forecasts for the projects are as follows:

Project A: Capital investment $200,000 Net annual cash flows $50,000 Length of project 5 years

Project B: Capital investment $300,000 Net annual cash flows $65,000 Length of project 7 years

The required rate of return acceptable to Leung is 9%.

Instructions (a) Compute the net present value of the two projects. (b) What capital budgeting decision should Leung make? (c) Project A could be modified. By spending $25,000 more initially, the net annual cash flows could be increased by $10,000 per year. Would this change Leung