A technology company evaluates two investment projects: Project A requires an initial investment of $500,000 with expected cash flows of $200,000 annually for 5 years, and Project B requires an initial investment of $800,000 with expected cash flows of $300,000 annually for 7 years. The company's required rate of return is 10%.

• Requirements:
  • Calculate the net present value (NPV), internal rate of return (IRR), and payback period for each project.
  • Perform a profitability index analysis to rank the projects.
  • Recommend which project(s) the company should undertake based on the investment appraisal techniques.
  • Discuss the strengths and limitations of NPV, IRR, and payback period in capital budgeting decisions.
  • Evaluate the risk factors associated with each investment project.