Compute the payback period for each project

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Reference no: EM13943592

Company K is considering two mutually exclusive projects. The cash flows outlay and incomes of the projects are:

Year Project A Project B

Initial Outlay -$2,000,000 -$2,000,000

1 400,000

2 400,000

3 400,000

4 400,000

5 400,000

6 400,000

7 400,000 4,250,000

a. Compute the payback period for each project.

b. Compute the NPV for each project, assuming a 13% required rate of return.

c. Compute the Profitability Index for each project, assuming a 13% required rate of return.

d. Fully explaining your logic, assuming you ARE going to invest in one of these two projects, how would you decide between the two projects?

Reference no: EM13943592

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