CAM Ltd has a limited capital budget available for investment in suitable projects this year, and has short-listed two possible choices. Details are as follows:

Project XProject Y

Capital cost 1,900,0001,900,000

Expected life 5 years5 years

Residual valuenil nil

Budgeted cash inflows: 000 000

Year 1 800 600

Year 2 900 900

Year 3 1,400 1,600

Year 4 800 900

Year 5 400 200

The cost of capital to CAM Ltd is 9%.

a)Calculate the payback period for each project.

b)Calculate the accounting rate of return for each project.

c)Calculate the NPV for each project.

d)Explain fully which project you would recommend.