1. Below are the cash flows for two projects.

Year Proj Y Proj Z

0 ($2,500,000) ($2,500,000)

1 2,100,000 950,000

2 875,000 863,000

3 675,000

4 900,250

a. Compare both projects using NPV if the cost of capital is 10%

b. Compare each project using the IRR approach.

c. Now compare both projects using the equivalent annual annuity (EAA) method.

d. Compare each projects using the replication approach. Assume the cost for Project Y has risen to $2,750,000.

e. Compute the profitability index for each project.

Show Formulas and answers in Excel please.