Two mutually exclusive projects are being considered. Both have a 10 year life. Option 1 requires an investment of $200M and is expected to provide a net profit of $40M/yr over its entire life. There is zero salvage. Option 2 requires an initial investment of $330M and provides a net profit of $30M the first year, which grows at $10M/year over the remainder of the life. There is zero salvage. For simplicity of calculations, assume that all cash flows occur at the end of the year. Your company uses a MARR of 10%.

a. Calculate the undiscounted payback period for both Options

b. Based on payback, recommend which Option to choose. Why?

c. Calculate the AE of both optionsd. Based on AE, recommend which option to choose. Why?

e. Which would you recommend? Why?