I.VDSL Company has two mutually exclusive projects. Below is a table representing the initial investment and cash flows for these projects over four (4) years.

Project A

Project B

Year

Cash Flow

Cash Flow

$

$

0

-750,000

-750,000

1

250,000

200,000

2

350,000

400,000

3

250,000

100,000

4

200,000

175,000

a.If the company's required rate of return is 8%, calculate the Profitability Index of each project and determine which project is the best investment. (3.5 Marks)

b. If the company wishes to recover the investment in 2.5 years, calculate the payback period of each project and determine which project is the best investment.