You recently join the corporate finance department in MH Components Company, a supplier for solar power equipment. The chief financial officer (CFO) just handed you the estimated cash flows for two proposed projects. Project A involves adding a new item into the firm's production line, which would take some time to build up the market for this product. It is expected the cash inflows would increase over time if the project were successfully implemented. On the other hand, Project B involves an add-on to the existing line and its cash flows would decrease over time. You and your team are told that both projects have 3-year lives because MH Components Company is planning to introduce entirely new models after 3 years. The projects' after-tax cash flows (in millions of dollars) are given below: Year Project A Project B (USD million) (USD million) -100 -100 70 50 20 0 1 2 3 10 60 80 Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firm's average project. MH's Weighted Average Cost of Capital (WACC) is 10%. You and your team must determine whether one or both of the projects should be accepted. a) Find the Net Present Value (NPV) for each project. b) According to NPV, which project(s) should be accepted if they are (1) independent and (ii) mutually exclusive? c) What is the Internal Rate of Return (IRR) for each project? d) According to IRR, which project(s) should be accepted if they are (i) independent and (ii) mutually exclusive? e) Write a detail analysis on the impact of the industry and government policies on the risk and return that may change the above investment decision and provide your recommendation to your CFO based on the point you stated.

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