Company Z is considering the following projects: Project K and Project L.

• Project K
  • Cost of Capital: 8%
  • Initial Investment: $100,000
  • Cash Inflow Year 1: $30,000
  • Cash Inflow Year 2: $50,000
  • Cash Inflow Year 3: $70,000
  • Scrap Value at Year 3: $7,000
• Project L
  • Cost of Capital: 10%
  • Initial Investment: $150,000
  • Cash Inflow Year 1: $40,000
  • Cash Inflow Year 2: $60,000
  • Cash Inflow Year 3: $80,000
  • Scrap Value at Year 3: $5,000

Tasks:

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