Question 3

Adriana Company is considering two alternative projects, X and Y. Both projects will have the same investment cost but different cash flows for the next 5 years:

	PROJECT X	PROJECT Y
Year	Cash Flow($)	Cash Flow ($)
0	(100,000)	(100,000)
1	50,000	10,000
2	40,000	20,000
3	20,000	20,000
4	20,000	20,000
5	10,000	70,000

For these two independent projects X and Y, use the following capital budgeting techniques:

1. Payback Period

2. Accounting rate of return

3. Net Present Value

4. Profitability index and recommend acceptance / rejection and which project should be chosen by the company. A rate of 12% has been selected for the NPV analysis.