Alpha Manufacturing Co. is evaluating two projects: Project 1 and Project 2.
Project 1 Cash Flow ($):
•Initial Investment: -$50,000
•Year 1: $20,000
•Year 2: $20,000
•Year 3: $20,000
Project 2 Cash Flow ($):
•Initial Investment: -$60,000
•Year 1: $30,000
•Year 2: $30,000
The discount rate for both projects is 10%.
1.Calculate the payback period for each project.
2.Which project should be accepted based on the payback period criterion?
3.Compute the profitability index for both projects.
4.Determine the preferred project based on the profitability index.
5.Calculate the NPV for each project and recommend which project should be accepted.