Your firm wants to invest $5,000,000 in a new project. There are two projects available and investment can be made in only one of them. Cash flows are as follows. (Higher payoff in the last year is due to scrap value.)
Year Investment A Investment B
0 -$5,000,000 -5,000,000
1 $1,500,000 $1,250,000
2 $1,500,000 $1,250,000
3 $1,500,000 $1,250,000
4 $1,500,000 $1,250,000
5 $1,500,000 $1,250,000
6 $1,500,000 $1,250,000
7 $2,000,000 $1,250,000
8 0 $1,600,000
State the problem, then valuate each of the two investments by payback period, modified payback period, IRR, NPV, and profitability index. Then justify which investment is better than the other. Assume that your firm's opportunity cost is 22%. Explain your work is detail and provide references.