Theta Inc. is considering two projects: Project E and Project F.
Project E Cash Flow ($):
•Initial Investment: -$120,000
•Year 1: $20,000
•Year 2: $30,000
•Year 3: $40,000
•Year 4: $50,000
Project F Cash Flow ($):
•Initial Investment: -$100,000
•Year 1: $25,000
•Year 2: $35,000
•Year 3: $45,000
•Year 4: $55,000
The discount rate for Project E is 7%, and for Project F, it is 9%.
1.Compute the payback period for each project.
2.Determine the project to be accepted if the payback period requirement is 3 years.
3.Calculate the profitability index for each project.
4.Which project should be accepted based on the profitability index?
5.Calculate the NPV for each project and recommend which project should be accepted.