The Computer Games Division of Entertainment, Inc. is considering two investment projects, each of which has an up-front expenditure of $30,000. You estimate that the cost of capital is 9 percent and that the investments will produce the following after-tax cash inflows: Year Project A Project B 1 6,000 22,000 2 12,000 16,000 3 16,000 12,000 4 22,000 6,000 Prepare answers to the following questions. Please show your calculations. 1. What is the payback period for each of the projects? 2. What is the Net Present Value (NPV) for each of the projects?

3. If the two projects are independent and the cost of capital is 9 percent, which project or projects should Entertainment, Inc. undertake? 4. If the two projects are mutually exclusive and the cost of capital is 9 percent, which project should Entertainment, Inc. undertake? (Hint: With mutually exclusive projects a situation in which only one of the two projects could be done, but not both the NPV method provides the theoretically best answer.)

\begin{tabular}{|c|c|c|} \hline Year & Project A & Project B \\ \hline 1 & 6,000 & 22,000 \\ \hline 2 & 12,000 & 16,000 \\ \hline 3 & 16,000 & 12,000 \\ \hline 4 & 22,000 & 6,000 \\ \hline \end{tabular}