Problem One (20 marks)

Your firm is trying to determine which project it should invest in. The projects are mutually exclusive. The cost of capital is 12%.

Please complete using Excel, this is all the information given.

	Expected Cash Flows	Expected Cash Flows
Year	Project A	Project B
0	-34,000	-31,500
1	-27,000	14,500
2	11,500	15,000
3	20,500	16,500
4	30,500	18,000
5	35,000	19,000
6	38,000	19,500
7	40,000	20,000

1. Calculate each projects IRR and the crossover rate of the two projects.

2. Calculate each projects MIRR at a reinvestment rate of 10%.

3. Calculate each projects regular payback period.

4. Calculate each projects discounted payback period with a cost of capital of 12%.

5. Calculate each projects profitability index at a cost of capital of 12%.

6. Calculate each projects NPV.

7. Construct the NPV profiles for Project A and Project B. (Note: plot the NPVs of both projects on the same graph.) The cost of capital ranges from 0% to 30% by increments of 2%