Elm City Electronics is considering two mutually exclusive projects that differ greatly on the required investment and projected cash flow s. The initial investment required for project II is $250,000 while for project II it is $25,000. Projected after-tax cash flows are shown below:
The opportunity cost of capital for Elm City is 6%.
a. Decide w hic h project you would choose by apply in g each of the following decision criteria separately. Explain your reasoning in each case: (1) payback period, (2) discounted payback period, (3) NPV, (4) IRR, and (5) profitability index.
b. Which project would you eventually choose? Explain your answer.