Project Evaluation (in $):

• Project X:

• Initial Cost: $40,000
• Year 1: $10,000
• Year 2: $15,000
• Year 3: $20,000

• Project Y:

• Initial Cost: $30,000
• Year 1: $5,000
• Year 2: $10,000
• Year 3: $25,000

Required:

1. Compute the payback period for each project.
2. If the standard payback period is 2 years, which project will you select?
3. Calculate the discounted payback period at a cost of capital of 10%.
4. Compute the NPV for each project using a discount rate of 10%.
5. Determine the profitability index (PI) for both projects.