NOP Ltd is evaluating two potential equipment purchases. The company’s discount rate is 12% and the tax rate is 25%. The equipment details are:

Equipment A:

• Cost: $450,000
• Expected Life: 5 years
• Annual Income before Depreciation & Tax: $100,000
• Depreciation: Straight line basis

Equipment B:

• Cost: $700,000
• Expected Life: 6 years
• Annual Income before Depreciation & Tax: $140,000
• Depreciation: Straight line basis

Requirements:

1. Compute the payback period.
2. Compute NPV.
3. Compute IRR.
4. Analyze the profitability index.
5. Recommend which equipment to purchase.