5. Patosh Ltd, a medium-sized business is considering two independent projects, Project X and Project Y. The initial cost of project X is US$350,000 and that of Project Y is US$600,000. Considering cost of capital for both projects is 10 % and the expected cash flows from each project are:

(a) Compute the payback period and discounted payback period for each project.

(b) Calculate the NPV and PI for each project.

(c) Indicate if the projects should be accepted based on the NPV and PI methods.

(d) Why would you prefer the NPV method to other methods of project evaluation?

(e) Outline the steps involved in capital budgeting decisions.

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Year 2 0123 Project X $ -350,000 Project Y $ -600,000 150,000 180,000 170,000 180,000 3 160,000 200,000 4 140,000 210,000 56 150,000 250,000 150,000 160,000