Green Energy Co. (GEC), an environmental energy company, is looking to purchase a new methane burning furnace, and wants to evaluate two different models that both have a useful life of 5 years. GEC requires a 12 percent return on investment. Assume operating cash flows noted below are before tax and not including depreciation. Assume a tax rate of 24% and capital cost allowance is taken on a straight line basis over 5 years.

Model A

Model B

Initial Cost (Cash outflow)

(275,000.00)

(140,000.00)

Operating Cash Flow Year 1

95,000.00

42,000.00

Operating Cash Flow Year 2

115,000.00

43,000.00

Operating Cash Flow Year 3

95,000.00

56,000.00

Operating Cash Flow Year 4

75,000.00

41,000.00

Operating Cash Flow Year 5

25,000.00

40,000.00

a If you apply the payback criterion, which investment should GEC choose? Why?

b.	If you apply the NPV criterion, which investment should GEC choose? Why?

c	If you apply the IRR criterion, which investment should GEC choose? Why?

d.If you apply the profitability index criterion, which investment should GEC choose? Why?

e.

At what discount rate would GEC be indifferent? Show your work. Which model would GEC choose if its required rate of return was below the indifferent discount rate? (3 marks). Note you may get a #NUM! as your answer. If you do it may not be wrong. If you do, make sure I can see what you did, double check your work and move on.