Iota Corporation is evaluating two projects: Project G and Project H.
Project G Cash Flow ($):
•Year 0: -$130,000
•Year 1: $30,000
•Year 2: $40,000
•Year 3: $50,000
•Year 4: $70,000
Project H Cash Flow ($):
•Year 0: -$140,000
•Year 1: $35,000
•Year 2: $45,000
•Year 3: $55,000
•Year 4: $75,000
The discount rate for Project G is 8%, and for Project H, it is 10%.
1.Calculate the payback period for each project.
2.Determine the project to be accepted if the company has a payback period requirement of 3 years.
3.Calculate the profitability index for each project.
4.Which project should be accepted based on the profitability index?
5.Compute the NPV for each project and decide which project should be accepted.