In: Finance
Suppose I have two mutually exclusive projects right now. For Project 1, it gives your $ 4200 dollar instantly, but you have to pay $1000 at the end of each year for the coming five years. For Project 2, it requires you to pay $1000 each year for five years. The first payment happens right now. Every payment happens at the start of the year. But at the end of the fifth year, you will get $6000 as a return. It is the start of the first year right now. The real interest rate is 3%.
a. What are the Internal Rates of Return and Net Present Values for two projects?
b. Which one of them would you choose to invest in? Why? c. What are the payback period and a discounted payback period of Project 1?
d. What are the profitability indices of these two projects?