Mr Roy and Mr. Freddy are finance officers in Kohl Inc., an Germany firm located in Muenchen. They are analyzing the proposed two business projects of the firm. They reasonably estimate that the cash flows of those projects shall be:

Year	Project A	Project B
1	$ 700.000	$ 8.000.000
2	$ 800.000	$ 4.000.000
3	$ 500.000	$ 6.000.000
4	$ 900.000	$ 5.000.000

a) Calculate the NPV and IRR for both projects! They count that the initial investments required for project A is $ 100,000 and for project B is 1,000,000. The initial estimate of the appropriate discount rate for both projects is 17 percent. As a new hire, you are required to help them in capital budgeting analysis.

b) According to the answers in a), which project shall be accepted?

c) Explain the potential problems in the capital budgeting analysis in this situation!

d) How the answers in a) could change if those projects' risks are significantly different!