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Question 1) Your division is considering two investment projects, each of which requires an upfront expenditure of $30 million

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Question 1) Your division is considering two investment projects, each of which requires an upfront expenditure of $30 million . You estimate that the cost of capital is 10 % and that the investments will produce the following after -tax cash flows (in millions of dollars ). Year Project A Project B 10 15 10 10 W N 15 8 20 6 a. Calculate the NPV and IRR of two projects . If the two projects are independent and the cost of capital is 10 %, which project or projects should the firm undertake ? . If the projects are mutually are exclusive , which one (s) will you consider for investment ? Take your decision based on both NPV and IRR If the cost of Capital is 12 % what is the MIRR of each project ? d. Calculate the payback period and discounted payback period . Between these two methods , which method is better ? e . Explain the two limitations of IRR with examples for each . Question 2: You are thinking about investing your money in the stock market . You have the following two stocks in mind : stock A and stock B. You know that either the economy can go in recession or it will boom . Being an optimistic investor , you believe the likelihood of observing an economic boom is two times as high as observing an economic depression . You also know the following about your two stocks : State of the Economy Probability RA RE Boom 209% 12 9% 109% Normal 40 9% 9 9% 10% Recession 40% 49% 10% a) Calculate the expected return for stock A and stock B b) Calculate the total risk (variance and standard deviation ) for stock A and for stock B c) Calculate the expected return on a portfolio consisting of 40 % invested in stock A and the remainder in stock B. Calculate the covariance between stock A and stock B. e ) Calculate the correlation coefficient between stock A and stock B. Calculate the variance of the portfolio consisting of 60 % invested in stock A and the remainder in stock B. g) Calculate the optimal % of investment (weight ) in stock A and stock B.