Kappa Enterprises is considering two projects: Project J and Project K.
Project J Cash Flow ($):
•Initial Investment: -$75,000
•Year 1: $10,000
•Year 2: $20,000
•Year 3: $30,000
•Year 4: $40,000
Project K Cash Flow ($):
•Initial Investment: -$80,000
•Year 1: $15,000
•Year 2: $25,000
•Year 3: $35,000
•Year 4: $45,000
The discount rate for both projects is 9%.
1.Calculate the payback period for each project.
2.Identify the project that should be accepted if the maximum payback period is 3 years.
3.Calculate the profitability index for each project.
4.Determine the preferred project based on the profitability index.
5.Compute the NPV for each project and recommend which project should be accepted.