Evaluate the following two projects for ABC Ltd.: Project L and Project M.

• Project L
  • Cost of Capital: 11%
  • Initial Investment: $150,000
  • Cash Inflow Year 1: $45,000
  • Cash Inflow Year 2: $55,000
  • Cash Inflow Year 3: $65,000
  • Scrap Value at Year 3: $10,000
• Project M
  • Cost of Capital: 13%
  • Initial Investment: $180,000
  • Cash Inflow Year 1: $55,000
  • Cash Inflow Year 2: $65,000
  • Cash Inflow Year 3: $75,000
  • Scrap Value at Year 3: $5,000

Tasks:

1. Compute the payback period for each project.
2. Determine the NPV for each project.
3. Calculate the IRR for each project.
4. Evaluate the profitability index for each project.
5. Recommend which project should be undertaken.