A firm with $500,000 to invest is considering Project P and Project Q. The expected cash flows are:

Project P:

• Year 1: $200,000
• Year 2: $150,000
• Year 3: $100,000
• Year 4: $50,000
• Year 5: $50,000

Project Q:

• Year 1: $50,000
• Year 2: $100,000
• Year 3: $150,000
• Year 4: $200,000
• Year 5: $100,000

The discount rate is 20%.

Required:

1. Determine the following for each project:
   • Payback period
   • Discounted payback period
   • Net present value
   • Internal rate of return
   • Profitability index
2. Based on the calculations, advise the firm on the best project to invest in.