Question 3 (20 points) (a) You are considering the following two mutually exclusive projects. Both projects have the following cash flow:

Project A	Project A	Project B	Project B
Year	Cash Flow	Year	Cash Flow
0	-$87,000	0	-$85,000
1	$31,000	1	$15,000
2	$37,000	2	$20,000
3	$44,000	3	$90,000
Required Rate of Return	12%	Required Rate of Return	14%
Required Payback Period	2.5 years	Required Payback Period	2.5 years

(i) [5 points] Calculate the Net Present Value NPV, which project should you pick? (ii) [5 points] Calculate the Profitability Index PI, which project should you pick?

(b) [10 points] Clive Limited Company has a cost of debt of 7%, a cost of equity of 11%, and a cost of preferred stock of 8%. The firm has 104,000 shares of common stock outstanding at a market price of $20 a share. There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102% of face value. The tax rate is 34%. What is the Weighted Average Cost of Capital WACC?