Suppose that required rate of return is 10%. Consider the following two mutually exclusive projects: Year Project A Project B 0 $400, 000 $10, 000 1 $100, 000 $10, 000 2 $200, 000 $10, 000 3 $300, 000 $10, 000 4 $150, 000 $5, 000

(a) Compute NPV of both projects.

(b) Compute IRRs of both projects.

(c) Compute profitability indices of both projects.

(d) Compute payback and discounted payback period of both projects.

(e) Do you agree with the following statement: Since IRR and P I are higher for project B, we should take it because it is much more profitable. Briefly explain your logic.

(f) Do you agree with the following statement: Although NP V of project A is higher, some firms might still find it optimal to pick project B in certain scenarios. Briefly explain your logic.