A firm is considering two projects with the following cash flows. The required return for project O is $10\%.$ Project M however is riskier and has a required return of $15\%$

Year

Project M

Year

Project O

$0$

$300,000$

$0$

$450,000$

$1$

$100,000$

$1$

$100,000$

$2$

$180,000$

$2$

$250,000$

$3$

$250,000$

$3$

$300,000$

Required:

Calculate the NPV & IRR for both projects. $(8$ marks$)$

Calculate the payback period $($including the fraction of a year$)$ for both projects. $(3$ marks$)$

Calculate the profitability index of both projects. $(3$ marks$)$

Using the in above calculations, which project or projects should the firm choose if the projects are:

Independent. Explain $(3$ marks$)$

Mutually exclusive. Explain $(3$ marks$)$