XYZ Ltd is evaluating two different projects. The company’s discount rate is 14% and tax rate is 28%. Details of the projects are:

Project X:

• Initial Cost: $500,000
• Life: 7 years
• Annual Income before Depreciation & Tax: $110,000
• Depreciation: Straight line basis

Project Y:

• Initial Cost: $750,000
• Life: 5 years
• Annual Income before Depreciation & Tax: $175,000
• Depreciation: Straight line basis

Requirements:

1. Compute the payback period.
2. Compute NPV.
3. Compute IRR.
4. Compare the profitability index.
5. Advise on the project to select.