Company B is evaluating two investment opportunities: Project P and Project Q.

• Project P
  • Cost of Capital: 8%
  • Initial Investment: $140,000
  • Cash Inflow Year 1: $50,000
  • Cash Inflow Year 2: $70,000
  • Cash Inflow Year 3: $90,000
• Project Q
  • Cost of Capital: 10%
  • Initial Investment: $180,000
  • Cash Inflow Year 1: $60,000
  • Cash Inflow Year 2: $80,000
  • Cash Inflow Year 3: $100,000

Tasks:

1. Calculate the payback period for both projects.
2. Determine the NPV for both projects.
3. Calculate the IRR for both projects.
4. Compare the profitability index of both projects.
5. Recommend which project should be undertaken.