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A company has $300,000 to invest in either Project A1 or Project B1. The cash flows are as follows: Year Project A1 Project B1 1

A company has $300,000 to invest in either Project A1 or Project B1. The cash flows are as follows:

Year

Project A1

Project B1

1

$80,000

$30,000

2

$80,000

$50,000

3

$80,000

$120,000

4

$80,000

$170,000

5

$80,000

$70,000

The discount rate is 7%.

Required:

  1. For each project, calculate the:
    • Simple payback period
    • Discounted payback period
    • Net present value
    • Internal rate of return
    • Profitability index
  2. Prepare a statement of retained earnings for the selected project.
  3. Advise the firm on which project to select based on the results of your calculations.

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