Q 2. You recently went to work for Allied Components Company, a supplier of auto repair parts used in the after-market with products from Daimler AG, Ford, Toyota, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firms ignition system line; it would take some time to build up the market for this product, so the cash inflows would increase over time. Project S involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 5-year lives because Allied is Projecting to introduce entirely new models after 5 years. Here are the projects after-tax cash flows (in thousands of dollars):

0

1

2

3

4

5

Project L

-250

75

70

95

90

120

Project S

-150

120

90

50

65

45

The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firms average project. Allieds WACC is 12%.

a. Calculate Project Ls and Ss payback, discounted payback, MIRR, NPV and IRR?

b.Which Project should company accept in case projects are: mutually exclusive and independent.

Calculate the crossover rate and Graph the NPV profiles for Project L and Project S.

a.		PROJECT L	PROJECT S
	NPV
	IRR
	MIRR
	PAYBACK
	DISC. PAYBACK
b.	Cross Over
	NPV Profile						GRAPH
	WACC	NPV Project L	NPV Project S