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The cash flows associated with two different projects are as follows: Cash Flows Project A ($ in millions) Project B ($ in millions) Initial Outflow

The cash flows associated with two different projects are as follows:

Cash Flows

Project A ($ in millions)

Project B ($ in millions)

Initial Outflow

420

160

Year 1

84

40

Year 2

140

80

Year 3

132

80

Year 4

128

20

a. Calculate the payback period of each investment show workings. (2 marks)

b. Which investments does the company accept if the cut-off payback period is three years? Four years? (1 mark)

c. If the company invests by choosing projects with the shortest payback period, which project would it invest in? (1 mark)

d. If the company uses discounted payback with a 12% discount rate and a 4-year cut-off period, which projects will it accept? Show your calculation of discounted payback method for both projects

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