XYZ Inc. is considering two investment projects. The firm’s cost of capital is 13%, and its tax rate is 20%. The project details are as follows:

Project 1:

• Cost: $2,500,000
• Expected life: 5 years
• Annual income before depreciation & tax: $700,000
• Depreciation: Straight-line

Project 2:

• Cost: $4,000,000
• Expected life: 6 years
• Annual income before depreciation & tax: $900,000
• Depreciation: Straight-line

Tasks:

1. Calculate the NPV for each project.
2. Compute the IRR for each project.
3. Determine the payback period for each project.
4. Evaluate the Profitability Index for each project.