Problem: Bagel Pantry Inc. is considering the following two projects. The company's cost of capital is 12%. The projected cash flows are summarized as follows:
Time Project A Project B
0 $(25,000) $(23,000)
1 14,742 6,641
2 14,742 6,641
3 14,742 6,641
4 6,641
5 6,641
6 6,641
Q1. What is the IRR for Project B? Should this project be accepted based on the IRR?
Q2. What is the payback period for Project B?
Q3. What is the PI for project B? Should this project be accepted based on the PI?
Q4. If Project A and B are mutually exclusive projects, which one should be accepted based on the replacement chain analysis? Please show your work.