In facing competition, Apple Inc. is debating whether to enter the TV business by launch a new product called iTV or to introduce a smart home control system called iHome, or a fitness center called iFit. The projected investment and cash flows for the three proposed projects are:

Year 0 1 2 3 4 5

iTV (40) 25 25 15 15 15

iHome (65) 20 20 20 40 40

iFit (40) 10 10 27 27 27

(a) Among iTV and iHome, which project should Apple choose if the discount rate is 10%? Now, which project should Apple choose if the discount rate were 15% instead, and why?

(b) Find the IRR for iTV and iHome using "trial-and-error" method. Is there any reason to believe that the project with the higher IRR is the better project?

(c) What is the pure payback period for the first two projects? Is there any reason to believe that the project with shorter payback is the better project?

(d) Compute the profitability indexes for each project at a 10% discount rate. Suppose Apple has a $110 million investment budget. The projects are not divisible. Which project(s) should be taken?