Stephens Industries is contemplating four projects: Project P, Project Q, Project R, and Project S. The capital costs and estimated after-tax net cash flows of each mutually exclusive project are shown in the table below. Stephens€™s after-tax cost of capital is 12 percent, and the company has a capital budget of $450,000 for the year. Excess funds cannot be reinvested at greater than 12 percent.

Required
A. Which projects will the company choose? Why?
B. If only one project can be accepted, which one should the companychoose?

Project P Project O Project R Project S Initial cost $200,000 $235,000 $190,000 S210,000 nual cash flows Year 1 Year 2 Year 3 Year 4 Year 5 90,000 85,000 75,000 55,000 50,000 29,827 175% 1.13 93,000 93,000 93,000 45,000 55,000 65,000 70,000 75,000 27,233 17.2% 1.14 40,000 50,000 60,000 65,000 75,000 (7,854) 10.6% 0.95 Net present value Internal rate of return Profitability index 23,370 18.7% 1.12