Question: Investment Decision ABC Ltd. is considering two projects: Project X : Initial Outlay: $50,000 Cash flows: $20,000 annually for 4 years Project Y : Initial

Investment Decision

ABC Ltd. is considering two projects:

Project X:

  • Initial Outlay: $50,000
  • Cash flows: $20,000 annually for 4 years

Project Y:

  • Initial Outlay: $50,000
  • Cash flows: $15,000 annually for 5 years

The discount rate is 9%.

Requirements:

  1. Calculate the NPV of both projects.
  2. Compute the IRR for both projects.
  3. Perform a break-even analysis for Project X.
  4. Determine which project has a higher profitability index.

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