Your firm has estimated the following cash flows for two mutually exclusive capital investment projects.

The firm's required rate of return is 10%.

Year Project A Cash Flow Project B Cash Flow

0 -$165,000 -$350,000

1 55,000 120,000

2 55,000 120,000

3 55,000 110,000

4 50,000 110,000

5 45,000 90,000

6 45,000 60,000

Which of the following is closest to the profitability index of project A?

a	1.18
b	1.36
c	1.45
d	1.25
e	1.30

Question 6 (10 points)

Which of the following is closest to the payback of project A?

a	3.00 years
b	4.00 years
c	4.92 years
d	3.89 years
e	3.44 years

Question 7 (10 points)

What is the IRR of project B?

a	20.79%
b	15.18%
c	18.75%
d	18.95%
e	22.05%

Question 8 (10 points)

Which of the following statements is true concerning projects A and B?

a	Project A should be accepted.
b	Project B should be accepted.
c	Both projects A and B should be accepted.
d	Both projects should be rejected.
e	Firm cannot make a decision on the basis of above information.

Question 9 (10 points)

The cash flows of projects A and B illustrate which of the following potential problems?

a	time disparity
b	arbitrary cut-offs
c	size disparity
d	long lives
e	non-conventional cash flows