Problem Two You are considering two mutually exclusive projects with the following cash flows: (Please show calculations)
Project C/F0 C/F1 C/F2 C/F3 C/F4 C/F5 C/F6
A $(41,215) $12,500 $14,000 $16,500 $18,000 $20,000 N/A
B $(46,775) $15,000 $15,000 $15,000 $15,000 $15,000 $15,000
A) Assuming that the discount rate for project A is 16% and the discount rate for B is 15%, then given that these are mutually exclusive projects, which project would you take and why?
B) If you are one of the management teams, when making a capital budgeting decision, how would you explain why the WACC is different for project A than for project B?
Please show calculations