\begin{tabular}{l|cccccrr} & A & B & C & D & E & F & G \\ 1 & There are two alternative projects for an expansion of a company's product lines: \end{tabular} The first option (Option 1) provides standard performance and reliability and costs $12,500,000. The expected cash inflow to the firm is estimated to be $3,200,000 per year after depreciation and tax. 3 The life of this project is 6 years. A competing option (Option 2) is a superior product and costs $18,500,000 and has a life span of 5 years. The cash inflow to the firm from this option is estimated to be $5,100,000 per annum, again 4 after depreciation and tax. This company has a cost of capital of 7% a) Calculate the Internal Rate of Return (IRR), Profitability Index (PI) and Payback period for both 7 options. (6 marks) b) Can NPV be used to rank the projects? If not, what should you do? Explain fully which project 8 should be chosen. ( 3 marks) c) In your own words describe some of the limitations associated with the use of NPV in analysing 9 projects? (2 marks) \begin{tabular}{l|cccccrr} & A & B & C & D & E & F & G \\ 1 & There are two alternative projects for an expansion of a company's product lines: \end{tabular} The first option (Option 1) provides standard performance and reliability and costs $12,500,000. The expected cash inflow to the firm is estimated to be $3,200,000 per year after depreciation and tax. 3 The life of this project is 6 years. A competing option (Option 2) is a superior product and costs $18,500,000 and has a life span of 5 years. The cash inflow to the firm from this option is estimated to be $5,100,000 per annum, again 4 after depreciation and tax. This company has a cost of capital of 7% a) Calculate the Internal Rate of Return (IRR), Profitability Index (PI) and Payback period for both 7 options. (6 marks) b) Can NPV be used to rank the projects? If not, what should you do? Explain fully which project 8 should be chosen. ( 3 marks) c) In your own words describe some of the limitations associated with the use of NPV in analysing 9 projects? (2 marks)