QUESTION: CALCULATE THE PAYBACK PERIOD, NET PRESENT VALUE, INTERNAL RATE OF RETURN AND PROFITABILITY INDEX FOR BOTH OF THE ROUTES. SHOW NECESSARY WORKINGS.

[NOTE: "BDT" IS USED TO DENOTE THE CURRENCY OF BANGLADESH.]

KINDLY SHOW ALL THE STEP BY STEP WORKINGS WHEN SOLVING. THANK YOU!

The airline industry of Bangladesh is still in its infancy. Especially the domestic routes are not lucrative enough yet since very few fly on air from one district to another. Currently there are four major airlines operating in Bangladesh: Biman, NovoAir, Regent and US Bangla. A new airline company named Comfort Airlines is exploring the possibility of starting domestic flights either for DHK-CTG route or DHK-RAJ route. Expenses to consider include aircraft rental cost, gate and landing fees and labor costs such as local baggage handlers and maintenance workers. The following table provides a summary of the after-tax cash flows associated with two investment alternatives. The after-tax cash flows associated with each investment are: Year Net Cash flow DHK-CTG DHK-RAJ 0 (BDT 51,00,000) (BDT 36,00,000) 1 1831223 1810724 2 1710142 1830046 3 1830046 1710142 4 1810724 1831223 The firm needs to decide now which project it should invest and thus it needs to apply different capital budgeting tools. A number of capital budgeting tools need a discount rate. The financial manager of the company identified that the firm's WACC is the appropriate discount rate for evaluating the projects applying the capital budgeting tools. But, its WACC is not yet calculated. So, now the firm is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: Debt: The firm can raise an unlimited amount of debt by selling BDT 1,000 par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made. Current market price of the bond is BDT 1,200. Preferred stock: The firm can sell 10% (annual dividend) preferred stock at its BDT 100 per share par value. The cost of issuing and selling the preferred stock is expected to be BDT 2.5 per share. An unlimited amount of preferred stock can be sold under these terms. Common stock (New issue): The firm's common stock is currently selling for BDT 80 per share. The firm expects to pay cash dividends of BDT 6 per share next year. The firm's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. Floatation costs are expected to amount to BDT 3 per share