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Delta Ltd is considering two investment projects, Project E and Project F. Project E Year 0: -$70,000 Year 1: $15,000 Year 2: $25,000 Year 3:
Delta Ltd is considering two investment projects, Project E and Project F.
Project E
- Year 0: -$70,000
- Year 1: $15,000
- Year 2: $25,000
- Year 3: $35,000
- Year 4: $45,000
Project F
- Year 0: -$80,000
- Year 1: $10,000
- Year 2: $30,000
- Year 3: $40,000
- Year 4: $50,000
The discount rate for Project E is 6%, and for Project F is 11%.
Requirements:
- Calculate the payback period for each project.
- Identify which project satisfies a payback period of 3 years.
- Compute the profitability index for both projects.
- Advise on which project to accept based on the profitability index.
- Calculate the net present value (NPV) and suggest the preferred project based on NPV.
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