Project A: This project is the introduction of a new product. It will require an upfront

investment of $10$ million dollars. At the end of year $1,$ the project will generate $2\mathrm{.}5$

million dollars in FCFs$.$ At the end of year $2,$ the project will generate $2\mathrm{.}6$ million dollars

in FCFs$.$ At the end of year $3,$ the project will generate $2\mathrm{.}7$ million dollars in FCFs$.$ At the

end of year $4,$ the project will generate $2\mathrm{.}8$ million dollars in FCFs$.$ At the end of year $5,$

the project will generate $3\mathrm{.}0$ million dollars in FCFs$.$ The project will generate no more

FCFs after year $5.$

Project B: This is an expansion of the company's main office. This project will require an

upfront investment of $4\mathrm{.}5$ million dollars. In year $1,$ the expansion will generate $0\mathrm{.}5$

million dollars in$.$ After the first year, FCFs will grow by $2\%$ each year forever.

Calculate the IRR of each project. For project A$,$ the IRR is $10\mathrm{.}851\%.$ Found on excel,

For Project $2,$ IRR is $11\mathrm{.}1\%$ as the equation of FCF$1/$Initial

investment which is $0\mathrm{.}5$millio$\frac{n}{4\mathrm{.}5}$Million shows that number

Calculate the NPV of each project.

The NPV for Project A with the formula leads to $1_{?}$

The NPV for project B with the formula NPV $=$ PV$($inflows$)-$CF$0(0\mathrm{.}5\frac{m}{.}02)-5$ million$=$

$20$ million

Calculate the Payback Period of each project.

Suppose the two projects are independent. Which $($if any$)$ should the company accept?

Why?

Suppose instead the two projects are mutually exclusive, and the company can only

accept one project. Which project should the company accent why?