4. You go to your desk and your boss comes in. I need you to do some work for me. Read this and tell me what you think. The assignment indicates that the following StuartCo Trains is a large Tank maker. It recently built the T123. It can carry a huge payload and is more nimble than other tanks. Initial project investments were $13B. Assume that the initial investment was paid on Dec 31, 2010. Assume that StuartCo will produce 60 Tanks per year for five years. Each Tank will be sold for $230M and total operating costs are 75% of revenues. Assume that revenues and costs occur at year-end with the first revenues (and costs) occurring on Dec 31, 2011.

a)Your boss then asks you to calculate the Profitability Index as of Dec 31, 2010, for the StuartCo investment outlined in #4 above. (4 marks)

b) Your boss wants a recommendation but based on only one of the three sets of analysis above (either NPV, Payback or Profitability Index). Which method do you choose? Why? (3 marks)