You are presented with two proposals, X and Y, with equal risks that require initial investments of $60,000 and $50,000 respectively. Subsequent after tax net cash inflows are given as follows:

Year Proposal X Proposal Y

1 $22,000 $15,000

2 22,000 15,000

3 22,000 20,000

4 22,000 20,000

Assume a cost of capital of 14%.

Required:

*****READ VERY CAREFULLY*****

1) (10 marks)

(a) Place your answer for each of the proposals by ranking method in the table below.

(b) For each ranking method, what is the better choice? X or Y? Circle the better choice.

(There should be only ONE answer circled PER row.)

Ranking Method	Proposal X	Proposal Y
Payback
Net Present Value
Internal Rate of Return
Profitability Index

(NOTE: Show all your work on the next page. No marks without supporting calculations.)

2) (2 marks)

If you could use only one ranking method to make your selection, which one would you use? Why?