. An organization intends to invest out of two options A and B available to them. The initial investment of the two project options are Rs 20,00,000/- and Rs25,00,000/- respectively. The organization intends to raise the required capital through issuing debt at an annual interest rate of 8%. The annual fixed depreciation is 5% on project investment. The applicable tax rate is 20%. The projected annual returns (EBIT) for the two projects are as follows:

YEAR EARNING BEFORE INTEREST AND TAXES (EBIT)

YEAR

1 2 3 4 5 6 7 8

PROJECT A (Rs)

8,00,000 7,00,000 6,00,000 8,00,000 9,50,000 10,90,000 9,00,000 12,00,000

PROJECT B (Rs)

9,00,000 9,80,000 10,00,000 9,50,000 8,50,000 11,00,000 12,50,000 9,45,000

A. Estimate Payback period, discounted payback period, IRR and NPV of both the projects.

B. Suggest which should be adopted and why?