1- Bader us considering two independent projects. Project A costs $168 and has projected cash flows of $720, $592, and $417 for years 1 to 3, respectively. Project B costs $675 and cash flows of $480, $185, and $134 for years 1 to 3, respectively. Bader assigns a discount rate of 10% to project A and 12% to project B. Which project or projects, if either, should he accept based on the profitability index rule?
2- You plan to bid on a project with a life of 5 years that will require $345 of fixed assets. These assets will be depreciated straight-line to zero over the project's life. Ignore bonus depreciation. The relevant discount rate is 20%, the tax rate is 12%, there is no interest expense, net working capital is unaffected, and there is no salvage value. What is the minimal required amount of annual sales revenue given annual cash costs of $321?
