Beta Industries is considering two projects: Project X and Project Y.
Project X Cash Flow ($):
•Year 0: -$150,000
•Year 1: $40,000
•Year 2: $50,000
•Year 3: $60,000
•Year 4: $80,000
Project Y Cash Flow ($):
•Year 0: -$100,000
•Year 1: $30,000
•Year 2: $40,000
•Year 3: $50,000
•Year 4: $60,000
The discount rate for Project X is 9%, and for Project Y, it is 10%.
1.Calculate the payback period for each project.
2.Determine which project should be accepted if the company has a maximum acceptable payback period of 3 years.
3.Calculate the profitability index for each project.
4.Which project should be accepted based on the profitability index?
5.Calculate the NPV for each project and decide which project should be accepted.