Hogsmeade village has two mutually exclusive projects. It has no other investment opportunity. Hogsmeades required rate of return is 21%. Which project should it choose if Hogsmeade wants to make atleast a profit of $1,200 as in todays value? Explain why? Which technique have you applied to make decision and why? The estimated cashflows (in $) from the projects are given below:

Marks: 15

Year Zonkos Joke Shop Honeydukes Sweetshop

0 (25,000) (23,000)

1 7,500 7,000

2 7,500 7,000

3 7,500 7,000

4 7,500 7,000

5 7,500 7,000