A firm is trying to choose between 3 investments, all have a cost of capital of 11%.

Year Project 1 Project 2 Project 3

Initial outlay $100,000 120,000 50,000

1 $ 10,000 32,000 10,000

2 20,000 32,000 0

3 30,000 32,000 0

4 40,000 32,000 0

5 50,000 32,000 75,000

Calculate Profitability index for each and tell me which to choose.

Calculate Payback period for each. Which project will be paid off the soonest?

If the firm wants to pick the project that is both profitable (positive NPV) and paid off the soonest, which should they choose?