Q1      Mr Ali has an option of investing in one project from the proposed three different projects

a). Payback period for project 1 = 3.53 years

For project 2 = 3.83 years

For project 3 = 4.61 years

b). Discounted payback period for project 1 = 5.25 years

For project 2 = 5.67 years

Discounted payback period for project 3 is greater than the 6 years because the initial investment will not recover in 6 years.

c). NPV for project 1 = $1,391.20

For project 2 = $1,077.53

For project 3 = -$165.51

d). Profitability index for project 1 = 1.14

For project 2 = 1.04

for project 3 = 0.99

e). IRR for project 1 = 16.06%

For project 2 = 13.21%

For project 3 = 11.79%

f). Mr. Ali should invest in project 1 because ;

The payback period for project 1 is lower than the project 2 & project 3.

The discounted payback period for project 1 is lower than the project 2 & project 3.

NPV for project 1 is greater than the project 2 & project 3.

Profitability index for project 1 is greater than the project 2 & project 3.

IRR for project 1 is greater than the project 2 & project 3.

So, the Mr. Ali must ignore the project 2 & project 3 and accept the project 1.