Requirements: Please analyze the following problem and answer questions by deriving the solutions in Excel spreadsheets. Please set formulae by referencing to the data in Excel spreadsheets. If you do not meet this requirement, you will be asked to re-work on the project.

AZM Inc. is evaluating two mutually exclusive projects of making two types of SUVs: mini-SUV, and fullSUV. Assume the discount rate for both projects is 10 percent. The costs of investment and projected cash flows for both projects are given in the following table:

Year AZM MINI-SUV. AZM FULL-SUV

0 -$650,000 -$975,000

1 $330,000 490,000

2 $310,000 460,000

3 $260,000 410,000

Questions

1. What is the payback period of each project? Based on the payback period, which project should be taken?

2. What is the profitability index of each project? Based on the profitability index, which project should be taken?

3. What is the internal rate of return (IRR) of each project? Based on the IRR, which project should be taken?

4. What is the net present value (NPV) of each project? Based on the NPV, which project should be taken??