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Maslow's restaurant is considering two mutually exclusive projects with the following cash flow streams

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Maslow's restaurant is considering two mutually exclusive projects with the following cash flow streams.

 

 

 

Project A Project B

 

 

 

Year 0 ($130,000) Year 0 ($150,000)

 

Year 1 $40,000 Year 1 $30,000

 

Year 2 $40,000 Year 2 $50, 000

 

Year 3 $40,000 Year 3 $25,000

 

Year 4 $40,000 Year 4 $55,000

 

 

 

a. compute probability index of both projects

 

b. using interpolation, estimate the internal rate of return for both projects, using a 15% required rate of return

 

c. which project should the firm accept and why?