● 26. XYZ Ltd. is considering two mutually-exclusive projects. Both require an initial cash outlay `10,000 each for machinery and have a life of 5 Years. The Company’s required rate of return is 10% and it pays tax at 30%. The projects will be depreciated on a straightline basis. The net cash flows (before taxes) expected to be generated by the projects and the present value (PV) factor (at 10%) are as follows:

Year 1 2 3 4 5

` ` ` ` `

Project 1 4,000 4,000 4,000 4,000 4,000 Project 2 6,000 3,000 2,000 5,000 5,000 PV factor (at 10%) 0.909 0.826 0.751 0.683 0.621 You are required to calculate I. The Pay Back Period of each project;

II. The NPV and the profitability index of each project.