Company K is considering two mutually exclusive projects. The cash flows outlay and incomes of the projects are:

Year Project A Project B

Initial Outlay -$2,000,000 -$2,000,000

1 400,000

2 400,000

3 400,000

4 400,000

5 400,000

6 400,000

7 400,000 4,250,000

a. Compute the payback period for each project.

b. Compute the NPV for each project, assuming a 13% required rate of return.

c. Compute the Profitability Index for each project, assuming a 13% required rate of return.

d. Fully explaining your logic, assuming you ARE going to invest in one of these two projects, how would you decide between the two projects?