You recently went to work for Yoshikawa Components Company, a supplier of

auto repair parts used in the after-market with products from Nissan, Honda,

Subaru, and other automakers. Your boss, the chief financial officer (CFO), has

just handed you the estimated cash flows for two proposed projects. Project L

involves adding a new item to the firms ignition system line; it would take

some time to build up the market for this product, so the cash inflows would

increase over time. Project S involves an add-on to an existing line, and its cash

flows would decrease over time. Both projects have 3-year lives because

Yoshikawa is planning to introduce entirely new models after 3 years.

Here are the projects after-tax cash flows (in thousands of dollars):

Depreciation, salvage values, net operating working capital requirements, and

tax effects are all included in these cash flows. The CFO also made subjective

risk assessments of each project, and he concluded that both projects have

risk characteristics that are similar to the firms average project. Allieds

WACC is 10%. You must determine whether one or both of the projects

should be accepted. A. What is the difference between independent and mutually exclusive projects? Between projects with normal and non normal cash flows?

B. Define the term net present value (NPV). What is each projects NPV? According to NPV, which project(s) should be accepted if they are independent? Mutually exclusive? C. Define the term internal rate of return (IRR). What is each projectsIRR?According to IRR, which project(s) should be accepted if they are independent? Mutually exclusive D. What is the payback period? Find the paybacks for Projects L and S.According to the payback criterion, which project(s) should be accepted if the firms maximum acceptable payback is 2 years, if Projects L and S are independent? If Projects L and S are mutually exclusive?

0 1 1 N 2 3 + Project L Projects -100 -100 10 70 + 60 50 80 20