Part 1. Sun Corp. uses a discount rate of 6% for below-average risk projects, 8% for average-risk projects, and 10% for above-average risk projects. Which of the following independent projects should Sun accept?
a. Project B has average risk and an IRR = 7.5%.
b. Project A has below-average risk and an IRR = 6.5%.
c. Project C has above-average risk and an IRR = 9.5%.
d. We need information about the projects' NPVs to make a decision.
Part 2
Which of the following items should be included in the cash flows used to estimate a project's NPV?
a. Interest on bonds and loans used to finance the project.
b. All costs associated with the project that have been incurred up to now.
c. The recovery of additional net working capital required for the project at the end of the project's life.
d. All costs for project-related research and development up to now.