Question: New Look Co. is considering three mutually exclusive projects, Project A, Project B and Project C. The company is interested in a project that will
New Look Co. is considering three mutually exclusive projects, Project A, Project B and Project C. The company is interested in a project that will repay the initial investment within 5 years. each with a useful life of 5 years. The company has started the analysis of the projects and the results for Project A and Project B are shown in the table below.
The cash flows for Project C are as follows:
| Year | Cash flows |
| 0 | ($1,000,000) |
| 1 | $125,000 |
| 2 | $250,000 |
| 3 | $360,000 |
| 4 | $400,000 |
| 5 | $450,000 |
The cost of capital for the company is 13%.
Required: Use the information provided for Project C to assess its feasibility.
Compute the following for Project C,
a. Payback period
b. Discounted payback period
c. Net present value
d. Profitability index
e. State which of the three projects should be chosen, and why?
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