[No Excel please, try to learn from the exam, need to show all your work, thanks! ]

Toronto Vintners Co-operative is considering two mutually exclusive projects: A and B. Project A requires a $20,000 cash outlay today and is expected to generate after-tax cash flows of $11,000 in year 1, $9,000 in year 2, and $7,000 in year 3. Project B requires a $30,000 cash outlay today and is expected to generate after-tax cash flows of $7,000 in year 1, $9,000 in year 2, $11,000 in year 3, and $16,000 in year 4. Both projects can be replicated at the end of its life. The appropriate discount rate for both project is 10%

a. Calculate the NPV of both projects. Given that the projects are mutually exclusive and can be replicated, which project should be accepted?

b. Calculate the payback periods of both projects if cash flows occur evenly throughout the year.

c. Calculate the discounted payback period of both projects if cash flows occur evenly throughout the year.

d. What is the profitability index of both projects?

e. Using the information in (a-d), which project should be chosen? Why?