Your division is considering two investment projects, each of which requires an up-front expenditure of $35 million. You estimate that the cost of capital is 9% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year Project A Project B
1 5 20
2 10 10
3 15 8
4 20 6
5 21 9
a. What is the regular payback period for project A?
b. What is the regular payback period for project B?
c. What is the discounted payback period for project A?
d. What is the discounted payback period for project B?
e. What is the net present value of project A?
f. What is the net present value of project B?
g. What is the internal rate of return (IRR) for project A?
h. What is the internal rate of return (IRR) for project B?
i. What is the modified internal rate of return (MIRR) for project A?
j. What is the modified internal rate of return (MIRR) or project B?
k. If both projects are mutually exclusive, which project(s) do you choose?
l. If the projects are independent, which project(s) do you choose?