Company A is considering two projects: Project M and Project N.

• Project M
  • Cost of Capital: 9%
  • Initial Investment: $120,000
  • Cash Inflow Year 1: $40,000
  • Cash Inflow Year 2: $60,000
  • Cash Inflow Year 3: $80,000
• Project N

• Cost of Capital: 11%

• Initial Investment: $160,000
• Cash Inflow Year 1: $60,000
• Cash Inflow Year 2: $70,000
• Cash Inflow Year 3: $90,000

Tasks:

1. Calculate the payback period for each project.
2. Calculate the net present value (NPV) for each project.
3. Calculate the internal rate of return (IRR) for each project.
4. Compare the profitability index for each project.
5. Make a recommendation on which project to select and why.