XYZ Manufacturing is comparing two capital investments. The cost of capital is 10% and the tax rate is 20%. The investments are:

Investment A:

• Cost: $300,000
• Expected Life: 4 years
• Annual Income before Depreciation & Tax: $80,000
• Depreciation: Straight line basis

Investment B:

• Cost: $500,000
• Expected Life: 5 years
• Annual Income before Depreciation & Tax: $120,000
• Depreciation: Straight line basis

Requirements:

1. Calculate the payback period.
2. Calculate NPV.
3. Calculate IRR.
4. Analyze the cash flow pattern.
5. Recommend which investment to undertake.