A company has $260,000 to invest in either Project I1 or Project J1. The cash flows are as follows:

• Year 1:
  • Project I1: $65,000
  • Project J1: $20,000
• Year 2:
  • Project I1: $65,000
  • Project J1: $40,000
• Year 3:
  • Project I1: $65,000
  • Project J1: $90,000
• Year 4:
  • Project I1: $65,000
  • Project J1: $140,000
• Year 5:
  • Project I1: $65,000
  • Project J1: $70,000

The discount rate is 6%.

Required:

1. For each project, calculate the:
   • Simple payback period
   • Discounted payback period
   • Net present value
2. Prepare a pro forma income statement for the selected project for the next five years.
3. Advise the company on which project to select based on the results of your calculations.