Epsilon Co. is considering two projects: Project C and Project D.
Project C Cash Flow ($):
•Year 0: -$85,000
•Year 1: $15,000
•Year 2: $25,000
•Year 3: $35,000
•Year 4: $45,000
Project D Cash Flow ($):
•Year 0: -$110,000
•Year 1: $25,000
•Year 2: $35,000
•Year 3: $45,000
•Year 4: $55,000
The discount rate for Project C is 7%, and for Project D, it is 9%.
1.Calculate the payback period for each project.
2.Which project should be accepted if the company requires a payback period of 3 years?
3.Calculate the profitability index for each project.
4.Determine the preferred project based on the profitability index.
5.Calculate the NPV for each project and decide which project should be accepted.