Indigo Oil and Gas Limited is considering two separate projects Golf and Hotel. The cash flow

projections for each year are as follows:

Years 0 1 2 3 4 5

Project Golf -$30,000 15,000 15,000 15,000 15,000 15,000

Years 0 1 2 3 4 5

Project Hotel -$37,500 3,750 3,750 3,750 3,750 75,000

The required return is 15% for both projects.

(a)Calculate the payback periods. Which project would you choose if you apply the payback period

criterion? (2 marks)

(b)Calculate the net present values. Which project would you choose if using the net present value

(NPV) criterion? (4 marks)

(c) If the internal rate of return of project Golf is 45% and project B is 30%, which project would you

choose using the IRR criterion? Why? (1 mark)

(d)Based on your answers for (a) through to (c), which project would you finally choose? Why?