1. Suppose a company has two mutually exclusive projects, both of which are three years in length. Project A has an initial outlay of $7,000 and has expected cash flows of $4,000 in year 1, $4,000 in year 2, and $4,000 in year 3. Project B has an initial outlay of $7,000 and has expected cash flows of $3,000 in year 1, $5,000 in year 2, and $6,000 in year 3. The required rate of return is 10% for projects at this company. What is the net present value for the best project? (Answer to the nearest dollar.)
2. If a project has an initial outlay of $44,000 and cash flows of $12,000 per year for the next 5 years, what is the IRR of this project? (Answer to the nearest tenth of a percent, e.g. 12.3).
3. Suppose a company has proposed a new 4-year project. The project has an initial outlay of $19,000 and has expected cash flows of $6,000 in year 1, $9,000 in year 2, $11,000 in year 3, and $14,000 in year 4. The required rate of return is 12% for projects at this company. What is the profitability index for this project? (Answer to the nearest hundredth, e.g. 1.23)