Practice question 1 The following two projects of equal risk are mutually exclusive alternatives for expanding the firm's capacity. The firm's cost of capital is 15%. The cash flows for each project are given in the following table. Year Cash Flow in AU$ (Project A) Cash Flow in AU$ (Project B) -210,000 -45,000 75,000 8,000 80,000 10,500 102,000 19,500 125,000 18,200 Required: a) Calculate each project's payback period. Using the payback period criterion which project is preferable? b Calculate the net present value for each project. Using the net present value criterion, which project is preferable? C) Verify whether the IRR is above or below 25% for each project. Using the internal rate of return criterion, which project is preferable? Calculate the profitability index. Using the profitability index criterion which project is acceptable? ctice question 2