Zeta Ltd. is evaluating two investment opportunities: Project K and Project L.
Project K Cash Flow ($):
•Year 0: -$50,000
•Year 1: $10,000
•Year 2: $20,000
•Year 3: $30,000
•Year 4: $40,000
Project L Cash Flow ($):
•Year 0: -$60,000
•Year 1: $15,000
•Year 2: $25,000
•Year 3: $35,000
•Year 4: $45,000
The discount rate for Project K is 6%, and for Project L, it is 8%.
1.Calculate the payback period for each project.
2.Identify the project that should be accepted if the maximum acceptable payback period is 3 years.
3.Calculate the profitability index for each project.
4.Which project should be accepted based on the profitability index?
5.Compute the NPV for each project and recommend which project should be accepted.