Question: ABC Ltd is considering two projects; A and B. Each requires an investment of $100 millions. The cost of capital is 10%. Below is the

ABC Ltd is considering two projects; A and B. Each requires an investment of $100 millions. The cost of capital is 10%. Below is the summary of expected net cash flows in millions

YearProject AProject B

15010

24020

33030

41040

5150

6160

Questions

a)Calculate the discounted payback period for each project. Which project is likely to be selected using this method?

b)Calculate the Net Present Value (NPV) for each project. Which project is likely to be selected using this method?

c)Calculate the Internal Rate of Return (IRR)for each project. Which project is likely to be selected using this method?

d)Calculate the Profitability Index (PI) for each project. Which project is likely to be selected using this method?

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