Use the following information about Company Y below to help answer problems 8-9.

• Today (T=0), Company Y is evaluating Project 1 and Project 2
• Each projects initial cash outlay and future cash flows are forecasted below
• Managements primary goal is to maximize firm value by maximizing NPV

CF0 CF1 CF2 CF3 CF4 CF5 CF6 CF7 CF8

Project 1 -360 90 90 90 90 90 90 90 90

Project 2 -400 60 80 100 120 125 120 115 100

1. Assume the projects are mutually exclusive. Which of the following statements is most likely FALSE:

1. The projects have the same payback period
2. If the cost to finance either project is 12%, management should accept both projects
3. If the cost to finance either project is 15%, management should only accept Project 2
4. If the cost to finance either project is 18%, management should only accept Project 1
5. If the cost to finance either project is 21%, management should reject both Projects

2. Assume management has enough capital to accept both projects if desired. Which of the following statements is most likely TRUE:

1. The projects have the same payback period
2. If the cost to finance either project is 18%, management should accept both projects
3. If the cost to finance either project is 18%, management should only accept Project 2
4. If the cost to finance either project is 15%, management should reject both Projects
5. If the cost to finance either project is 12%, management should only accept Project 1