Project Selection Dragon Products Company is considering two projects. The projects cash flows are as follows:

EXPECTED NET CASH FLOWS YEAR PROJECT A PROJECT B 0 ($9300) (17,600) 1 2700 3870 2 1930 2450 3 1500 4700 4 2800 4575 5 3200 2450 Discount Rate for both pojects = 7.5%

REQUIRED

1. Find the Payback Period [PBP] of both projects 2. What is the Discounted PBP of both projects ?

3. Calculate the Net Present Value of the two projects and decide which one is better? 4. What is the profitability index of both products ? What is the function of PI in project selection?

5. What are the IRR of the projects ? Which of the projects is the best using IRR as a criteria? Why? 6. Why is sunk cost not considered when deciding about selecting a project? Which cost is considered and why?