Company XYZ stock is considering the two new projects, Project A and Project B. The two projects have similar risk characteristics as the existing business. The managers forecast the following investment outlay and cash flows.
1. If Project A and Project B are independent, what is your recommendation on the projects?
2. How do you rank the two projects based on the following criteria:
(a) Regular payback and discounted payback
(b) NPV
(c) IRR
(d) Profitability index
3. If Project A and Project B are mutually exclusive, what is your recommendation?
4. If the WACC changes due to either Fed interest rate policy or the returns required by the investors, should your recommendations change?