Question 3:

A company is considering two different investment opportunities. Use the provided data to determine which project has a better Payback Period and Profitability Index (PI).

• Project A:
  • Initial Investment: $30,000
  • Yearly Cash Flows: $10,000 for 4 years
• Project B:
  • Initial Investment: $40,000
  • Yearly Cash Flows: $15,000 for 3 years

Requirements:

1. Calculate the Payback Period for both projects.
2. Calculate the Profitability Index (PI) for both projects assuming a discount rate of 8%.
3. Determine which project is more viable based on Payback Period.
4. Determine which project is more viable based on Profitability Index.