Question
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.
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.
c
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
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