A company has been offered the following mutually exclusive investment projects:

Project 1 Project 2

Initial investment 400,000 80,000

Payback 6 years 3 years

Internal rate of return 9% 13%

Net present value 63,000 10,500

(i) Explain why the three investment criteria payback, internal rate of return(IRR) and net present value (NPV) might have given different rankings forthe two projects.

(ii) Explain which of the two projects is the optimal investment project for thecompany, based on the information given.