Two projects are listed below. As an analyst within the government, your job is to identify metrics for the projects investment decision criteria. Two such projects have the following criteria:

Project 1 project 2

Initial cost	$2,000,000	$3,500,000
Ecpects annual cash flow to the firm	$600,000	$700,000
Life (years)	5	8

These projects have a cost of capital of 8% p.a.

Note: The cash flow s to the firm are after tax and depreciation.

a) Calculate for both projects, the:

1. Internal Rate of Return (IRR )

11. Net present value (NPV )

111. Profitability Index (PI ) and;

1v. Payback Period for project 1 and 2.

b) Can NPV be used to rank the projects? If not, why not? Note : there is no need for any calculations .

c) what are some of the reasons that cause the net Present Value and Internal Rate of Return to give different recon1mendations on the acceptance of a project ?