Consider two mutually exclusive projects with the following expected cash flows and a required rate of return of 5% percent.

	Cash Flows
Year	Project S	Project L
0	-7,000	-27,000
1	4,000	7,000
2	5,000	12,000
3	5,500	20,000

(a) If you apply the payback criterion, which investment will you choose? Why? (2.5 marks)

(b) If you apply the NPV criterion, which investment will you choose? Why? (4.5 marks)

(c) If you apply the profitability index criterion, which investment will you choose? Why? (3.5 marks)

(d) Based on your answers in (a) to (c), which project will you finally choose? Why? (2 marks)