A company has $250,000 to invest in either Project X or Project Y. The cash flows are as follows:
•Year 1:
oProject X: $70,000
oProject Y: $25,000
•Year 2:
oProject X: $70,000
oProject Y: $45,000
•Year 3:
oProject X: $70,000
oProject Y: $90,000
•Year 4:
oProject X: $70,000
oProject Y: $140,000
•Year 5:
oProject X: $70,000
oProject Y: $60,000
The discount rate is 8%.
Required:
1.For each project, calculate the:
oSimple payback period
oDiscounted payback period
oNet present value
2.Prepare a projected balance sheet for the selected project at the end of Year 5.
3.Recommend which project the company should select based on the results of your calculations.