Question: (a) ABC Hotels is considering two expansion projects, one in the Bahamas and the other one in St. Lucia with cash flows as follows: ABC

(a) ABC Hotels is considering two expansion projects, one in the Bahamas and the other one in St. Lucia with cash flows as follows: ABC Bahamas Yr. 0: -$10,000 Yr 1: $5,000 Yr. 2: $7,000 Yr. 3: $9,000 ABC St. Lucia Yr. 0: -$7,000 Yr. 1: $9.000 Yr. 2: $5.000 Yr. 3: $2,000 The NPV for ABC Bahamas is $7,092.41 and the NPV for ABC St. Lucia is $6,816.68. At a discount rate of 10%, what are the modified internal rates of return for ABC Bahamas and ABC St. Lucia? (8 marks) (b) Which project should be accepted and why? (2 marks) (c) Calculate the Profitability Index of each project, which one should be accepted if they are mutually exclusive and why?

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