Company K is considering two mutually exclusive projects. The cash flows of the project are:
Year Project A Project B
Initial Outlay -$1,700,000 -$1,700,000
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.
d. Fully explain your logic, how would you decide between these two projects and which would you recommend?