A company has $285,000 to invest in either Project O1 or Project P1. The cash flows are as follows:

• Year 1:
  • Project O1: $75,000
  • Project P1: $25,000
• Year 2:
  • Project O1: $75,000
  • Project P1: $55,000
• Year 3:
  • Project O1: $75,000
  • Project P1: $120,000
• Year 4:
  • Project O1: $75,000
  • Project P1: $160,000
• Year 5:
  • Project O1: $75,000
  • Project P1: $80,000

The discount rate is 10%.

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.