152Chapter 6DCapital Budgeting Techniques23.Michigan Mattress Company is considering the purchase of land and the construction of a new plant. The land, which would be bought immediately (at t = 0), has a cost of $100,000 and the building, which would be erected at the end of the first year (t = 1), would cost $500,000. It is estimated that the firm's after-tax cash flow will be increased by $100,000 starting at the end of the second year, and that this incremental flow would increase at a 10 percent rate annually over the next 10 years. What is the approximate payback period? 24.Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: YearProject AProject B0 ($100,00) ($100,000) 1 39,500 2 39,500 3 39,500 133,000 Based onlyon the information given, which of the two projects would be preferred, and why? 0 0 a. Project A, because it has a shorter payback period. b. Project B, because it has a higher IRR. c. Indifferent, because the projects have equal IRRs. d. Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases. e. Choose neither, since their NPVs are negative.