Morgan Corp., a corporation that taxes its income at 34%, is considering invest in a new project that will last 5 years. The corporation is analyzing and will have to choose between one of the following two options: Project duration: 5 years Option A * Project cost (plant and equipment): $ 14,800,000 * Handling and installation costs: $ 200,000 * Projected Sales (in units): Year 1 - 70,000 (units) Year 2 - 120,000 Year 3 - 120,000 Year 4 - 80,000 Year 5 - 70,000 * Selling price per unit: $ 300 per unit from year 1 to 4, $ 250 per unit in year 5 * Costs (expenses): -Variables per unit - $ 140 per unit -Annual fixed - $ 700,000 * Depreciation method: Straight line with a useful life of 5 years. Assume the project is worthless residual (salvage value). * Under this option an increase of $ 50,000 in current assets and an increase of $ 25,000 is projected in current liabilities (debts). (Net working capital) Option B * Cost of the new business line: $ 6,900,000 * New equipment installation and handling costs: $ 100,000 * Projected sales (in units): Year 1 - 80,000 (units) Year 2 - 100,000 Year 3 - 120,000 Year 4 - 70,000 Year 5 - 70,000 * Selling price per unit: $ 250 per unit from year 1 to 4, $ 200 per unit in year 5 * Costs (expenses): -Variables per unit - $ 130 per unit -Annual fixed - $ 300,000 * Depreciation method: Straight line with a useful life of 5 years. Assume the project is worthless residual (salvage value). * Under this option, an increase of $ 40,000 in current assets and an increase of $ 20,000 is projected in current liabilities (debts).

Additional Information: A. There will be no sale of existing assets at the beginning of the project, therefore Morgan Corp. will not you will experience capital gains on this transaction. B. For neither of the two options presented is a terminal cash flow projected (terminal cash flow) 

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Morgan Corp. wants to invest and expand. The corporation is analyzing and trying to decide between two projects whose duration is 5 years (each). These projects are mutually exclusive. The required rate of return established for both projects is 12%. Information is provided below on the (net) cash flows that you expect to obtain from each project

	project x	project z
initial investment	(110,000)	(110,000)
year 1	$20,000	$40,000
year 2	$30,000	$40,000
year 3	$40,000	$40,000
year 4	$50,000	$40,000
year 5	$70,000	$40,000

1. Calculate the Payback Period for each project. 2. Calculate the Discounted Payback Period for each project. 3. Calculate the Net Present Value (NPV) for each project. 4. Calculate the Profitabilty Index (PI) for each project. 5. Based on the information obtained in the first three questions, make recommendations to Morgan Corp. on which project to choose and why.