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A company is considering investing $300,000 in either Project A or Project B with the following cash flows: Year Project A Project B 1 $90,000

A company is considering investing $300,000 in either Project A or Project B with the following cash flows:

Year

Project A

Project B

1

$90,000

$20,000

2

$90,000

$50,000

3

$90,000

$70,000

4

$90,000

$150,000

5

$90,000

$60,000

The current cost of capital is 10%.

Required:

a) Calculate for each project the:

  • Simple payback period
  • Discounted payback period
  • Net present value
  • Internal rate of return
  • Profitability index

b) Based on your results in (a) above, advise the firm.

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