Eta Corporation is considering two projects, Project K and Project L.

Project K

• Year 0: -$110,000
• Year 1: $30,000
• Year 2: $40,000
• Year 3: $50,000
• Year 4: $60,000

Project L

• Year 0: -$120,000
• Year 1: $35,000
• Year 2: $45,000
• Year 3: $55,000
• Year 4: $65,000

The discount rate for Project K is 7%, and for Project L is 9%.

Requirements:

1. Calculate the payback period for each project.
2. Determine which project satisfies a payback period of 3 years.
3. Compute the profitability index for both projects.
4. Recommend the project to accept based on the profitability index.
5. Calculate the net present value (NPV) and provide a recommendation based on NPV.