Question 1 (20 marks) A company is considering the following two mutually exclusive projects. The cash flows of the projects follow: Annual cash flows: Project I Project II Year 0 $(500,000) $(500,000) Year 1 $46,000 $225,000 Year 2 $138,200 $220,000 Year 3 $470,000 $115,000 Year 4 $58,000 $105,000 Required return 13% (a) Compute the payback period of each project and determine which project the company should accept. (5 marks) (b) Compute the discounted payback period of each project and determine which project the company should accept. Is the conclusion same as (a)? Explain if it is not the same. (7 marks) (c) Compute the NPV of each project and determine which project the company should accept. (6 marks) (d) Based on the above analysis, which project should the company accept? (2 marks) Question 2 (20 marks) (a) You have 40 years left until retirement and want to retire with $3 million. Your annual salary is now $100,000 and you expect it will increase at 2% per year. You would like to start saving a constant percentage of your salary at the end of the current year, and you can earn an annual return of 8% on the money you invest. What percentage of your salary must you save each year to achieve your retirement plan? (8 marks) (b) Adventures Ltd just paid a dividend of $3 a share this year. It is going maintain a constant dividend growth rate of 5%. What will one share of this common stock be worth ten years from now if the applicable discount rate is 10%? (6 marks) (c) A 20-year bond has a face value of $20,000. The bond makes no payments for the first six years, and pays $1,300 every six months till maturity. Compute the current price of the bond if the required return is 5.4% compounded semiannually. (6 marks)