ABC Corp is evaluating two potential investments:
Investment 1:
•Initial Cost: $2,000,000
•Annual Cash Inflows: $500,000 for 6 years
Investment 2:
•Initial Cost: $3,000,000
•Annual Cash Inflows: $700,000 for 6 years
Requirements:
1.Compute the NPV for both investments assuming a discount rate of 8%.
2.Calculate the profitability index (PI) for each investment.
3.Determine the payback period for both investments.
4.Advise which investment should be selected based on NPV and PI.