Question 3

JDH Investments Limited is considering the following two tourism investment options, both with a 10% required rate of return and a five-year lifespan.

	CASH FLOWS
YEAR	PROJECT P	PROJECT Q
	$	$
0	(60000)	(60000)
1	20000	50000
2	30000	20000
3	40000	5000
4	50000	5000
5	60000	5000

A. Calculate the: i. payback period for both projects. (5 marks)

ii. Net Present Value. (7 marks)

iii. Profitability Index (4 marks)

B. Using the information calculated at A. which project should be selected, assuming that the projects are:

i. mutually exclusive

ii. independent

Justify your response. (4 marks)