Island Corporation is considering two mutually exclusive projects. Project 1 requires an investment of $80,000, while Project 2 requires an investment of $90,000. Cash revenues and cash costs for each project are shown below: PROJECT 1 YEAR 1, Revenues $30,000 Variable costs 8,000 Fixed costs 12,000. years 2, revenues $50,000 Variable costs 12,000 Fixed costs 10,000. years 3, revenues 70,000, variable cost 20,000, Fixed costs 10,000. year 4, Revenues 90,000. variable cost 25,000. fixed coast 10,000.

PROJECT 2 YEAR , Revenues $65,000 Variable costs 15,000 Fixed costs 5,000. years 2, revenues $80,000 Variable costs 30,000 Fixed costs 20,000. years 3, revenues 60,000, variable cost 14,000, Fixed costs 10,000. year 4, Revenues 40,000. variable cost 12,000. fixed coast 8,000.

The company estimates that at the end of the fourth year Project 1 would have a salvage value of $10,000 and Project 2 would have a salvage value of $5,000.

Required:

a. Calculate the payback period of each project.

b. Determine the net present value of each project using a 5% percent discount rate.

c. Compute profitability index.

d. Critically discuss the three different methods, payback period, present value, profitability index as an investment appraisal method.

e. Prepare a memorandum for management stating your recommendation. f. Compute the breakeven point for each Project, if the expected output for project 1 is 25,000 units and Project 2 has an expected output of 49,000 units. g. Compute the output of each project if a profit was $50,000.