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A business must choose between two projects, Project K and Project L, with a budget of $180,000. The anticipated cash flows are: Project K: Year

A business must choose between two projects, Project K and Project L, with a budget of $180,000. The anticipated cash flows are:

Project K:

  • Year 1: $45,000
  • Year 2: $45,000
  • Year 3: $45,000
  • Year 4: $45,000
  • Year 5: $45,000

Project L:

  • Year 1: $20,000
  • Year 2: $30,000
  • Year 3: $40,000
  • Year 4: $50,000
  • Year 5: $60,000

The discount rate is 13%.

Required:

  1. For each project, compute the:
    • Payback period
    • Discounted payback period
    • Net present value
    • Internal rate of return
    • Profitability index
Provide a recommendation on which project to invest in based on the analysis.

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