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A company has $320,000 to invest in either Project K or Project L. The cash flows are as follows: Project K generates cash flows of

A company has $320,000 to invest in either Project K or Project L. The cash flows are as follows:

Project K generates cash flows of $85,000 each year for five years. Project L generates cash flows of $25,000 in the first year, $45,000 in the second year, $90,000 in the third year, $130,000 in the fourth year, and $80,000 in the fifth year. The discount rate is 9%.

Required:

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

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