1)P.L.C. is considering three project alternatives to invest in Bishoftu Town with same initial investment of 120,000 birr. The cash inflows of the three investments is computed from the projected income statement and presented below: the cost of capital (opportunity cost) is 8%.(6 points)

Year

Cash inflows

Hotel

Super Market

Cafeteria

1

8,000 birr

15,000 birr

20,000 birr

2

20,000

20,000

60,000

3

40,000

30,000

50,000

4

60,000

40,000

12,000

5

30,000

28,000

4,000

Required: Based on the following capital budgeting criteria evaluate the three project alternatives.

a.Payback Period Method

b.Net present value (NPV) Method

c.Profitability Index ( PI) Method