Reference no: EM132509898

A company has to make a choice between two projects namely A & B. The initial capital outlay of two projects are $365,000 and $568,000 respectively for A and B. There will be no scrap value at the end of the life of both the projects. The opportunity cost of capital of the company is 16%. The annual income are as under:

Year               Project A                   Project B

1                      15,000                8,500

2                      23,000             11,100

3                        27,500            15,200

4                          19,600            14,700

5                         18,400               22,500

6                         23,400                28,100

7                          35,200              39,200

8                               38,100             50,400

9                               39,000              82,400

10                          45,150                        79,200

11                             46,800                   98,640

12                            48,630               110,800

13                              52,180                    61,400

14                                 50,280               70,560

15                                  61,890                 52,400

There will be additional cash outflow of $23,000 and $31,000 at the end of 8 year for project A and B respectively.

Question 1: Analyze which project is better for the company using following approaches:

1. Net present value 2. Payback period 3. Discounted payback period 4. Profitability index