Question 1: Capital Budgeting and Decision Making

You are the financial manager of a manufacturing company. The company is considering two investment projects: Project A and Project B.

• Project A requires an initial investment of $1,000,000 and is expected to generate cash flows of $300,000 per year for five years.

• Project B requires an initial investment of $800,000 and is expected to generate cash flows of $250,000 per year for six years.

• Both projects have a required rate of return of 10%.

Based on the information provided, analyze and recommend which project the company should choose, considering factors such as net present value (NPV), payback period, and profitability index. Critically evaluate your decision-making under the uncertain business environment.

(25 Marks)