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You are considering two short term mutually exclusive projects. X and Y. Project X has...

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You are considering two short term mutually exclusive projects. X and Y. Project X has an initial cost of $50 million and equal cash flows estimated to be $32.5 million for each of the next two years. Project Y costs $40 million upfront and cash flows are estimated to be 532.5 million and $20 million in the next two years, respectively. Your required return is 10% (EAR). Required a) Compute the Net Present Value (NPV) for the two projects. Which project gives a higher NPV? (10 points) b) Compute the Profitability Index (PI) for the two projects. Which project gives a higher PI? (5 points) Use PV(C,C2,...,C, PI -Co c) Does your answer in b) agree with your answer in a)? If not, what seems to be the reason? (6 points) d) Which of the following is the incremental IRR, 1) 19.43%, i) 22.17% or in) 11.80%? Explain your answer. (4 points)

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