A firm is analyzing two mutually exclusive projects: Project X1 and Project X2.

• Project X1
  • Cost of Capital: 10%
  • Initial Investment: $100,000
  • Cash Inflow Year 1: $30,000
  • Cash Inflow Year 2: $50,000
  • Cash Inflow Year 3: $60,000
  • Scrap Value at Year 3: $5,000
• Project X2
  • Cost of Capital: 12%
  • Initial Investment: $130,000
  • Cash Inflow Year 1: $40,000
  • Cash Inflow Year 2: $60,000
  • Cash Inflow Year 3: $70,000

Tasks:

1. Determine the payback period for both projects.
2. Calculate the NPV for both projects.
3. Calculate the IRR for both projects.
4. Assess the profitability index for both projects.
5. Provide a recommendation on which project should be chosen.