Gamma Corp. is reviewing two investment projects: Project Alpha and Project Beta.
Project Alpha Cash Flow ($):
•Initial Investment: -$200,000
•Year 1: $60,000
•Year 2: $70,000
•Year 3: $80,000
•Year 4: $90,000
Project Beta Cash Flow ($):
•Initial Investment: -$150,000
•Year 1: $50,000
•Year 2: $60,000
•Year 3: $70,000
•Year 4: $80,000
The discount rate for both projects is 12%.
1.Compute the payback period for each project.
2.Identify the project that should be accepted if the payback period requirement is 3 years.
3.Calculate the profitability index for both projects.
4.Which project should be accepted based on the profitability index?
5.Compute the NPV for each project and determine which project should be accepted.