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XYZ Corporation is evaluating two projects, Project A and Project B. Project A: Year Cash Flow ($) Year 0 -150,000 Year 1 30,000 Year 2

XYZ Corporation is evaluating two projects, Project A and Project B.

Project A:

Year

Cash Flow ($)

Year 0

-150,000

Year 1

30,000

Year 2

40,000

Year 3

50,000

Year 4

60,000

Project B:

Year

Cash Flow ($)

Year 0

-200,000

Year 1

70,000

Year 2

60,000

Year 3

40,000

Year 4

80,000

The discount rate for Project A is 8%, and the discount rate for Project B is 10%.

Requirements: a) Calculate the payback period for each project. b) Determine which project should be chosen if the projects are mutually exclusive and the company requires a payback period of 3 years. c) Calculate the profitability index for each project. d) Decide which project should be accepted based on the profitability index rule if the projects are mutually exclusive. e) Calculate the net present value (NPV) for each project and recommend which project should be accepted based on NPV.

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