a)An Oil exploration Company is contemplating setting up an Oil refinery in the North Coast of Kenya. The Project will have the following cash flow features; Year 0 1 2 3 4 Cash Flow (Ksh 000) 18,500 0 6,500 11,500 15,500 Additional Information 5% Depreciation is on a straight line method over the period 12 % is the applicable discount rate The Project attracts a Corporate tax of 20%

Required: Advise the Management of the Oil firm whether or not to proceed with the project based on: i.Pay Back Period (3 Marks) ii.Net Present Value (5 Marks) Profitability Index. What is your understating for this measure