The financial team of GHI Ltd needs to decide between two investment opportunities. The firm’s cost of capital is 13% and the tax rate is 27%. The projects are:

Option A:

• Initial Cost: $400,000
• Expected Life: 5 years
• Annual Income before Depreciation & Tax: $95,000
• Depreciation: Straight line basis

Option B:

• Initial Cost: $600,000
• Expected Life: 4 years
• Annual Income before Depreciation & Tax: $140,000
• Depreciation: Straight line basis

Requirements:

1. Calculate the payback period.
2. Calculate NPV.
3. Calculate IRR.
4. Evaluate the profitability index.
5. Provide investment advice.