Kappa Corporation is considering two projects, Project Q and Project R.

Project Q

• Year 0: -$85,000
• Year 1: $25,000
• Year 2: $35,000
• Year 3: $45,000
• Year 4: $55,000

Project R

• Year 0: -$95,000
• Year 1: $30,000
• Year 2: $40,000
• Year 3: $50,000
• Year 4: $60,000

The discount rate for Project Q is 6%, and for Project R is 10%.

Requirements:

1. Calculate the payback period for each project.
2. Identify which project meets a payback period requirement of 3 years.
3. Compute the profitability index for each project.
4. Advise on which project to accept based on the profitability index.
5. Calculate the net present value (NPV) and suggest the preferred project based on NPV.