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A company has $350,000 to invest in either Project T or Project U. The cash flows are as follows: Year Project T Project U 1

A company has $350,000 to invest in either Project T or Project U. The cash flows are as follows:

Year

Project T

Project U

1

$100,000

$40,000

2

$100,000

$60,000

3

$100,000

$130,000

4

$100,000

$170,000

5

$100,000

$90,000

The discount rate is 8%.

Required:

  1. For each project, calculate the:
    • Simple payback period
    • Discounted payback period
    • Net present value
    • Internal rate of return
  2. Prepare a comparative income statement for both projects over the five years.
  3. Advise the firm on which project to select based on the results of your calculations.

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