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Question 2 20 MarksJK Products is evaluating an investment in either of twocompeting projects that will allow the company to eliminate aproduction bottleneck and meet the growing demand for its products.The company’s engineering department narrowed the alternatives downto two –MD and HD. A project specialist developed the followingestimates of cash flows for MD and HD over the relevant six-yeartime horizon. The company has an 11% required return and viewsthese projects as equally risky.Project MD Project HDInitial Outflow (CF0) R670,000 R940,000Year (t) Cash Inflows (CFt)1 R250,000 170,0002 200,000 180,0003 170,000 200,0004 150,000 250,0005 130,000 300,0006 130,000 550,000Required:2.1.Calculate the net present value (NPV) of each project, assessits acceptability and indicate whichproject is best, using NPV.2.2. Calculate the internal rate (IRR) of each project, assess itsacceptability and indicate whichproject is best, using IRR.2.3.Calculate the profitability index (PI) of each project, assessits acceptability, and indicate whichproject is best, using PI.2.4.Draw the NPV profile project SQ and HT on the same set of axesand use this diagram to explainwhy the NPV and the IRR show differences for these two mutuallyexclusive projects. Discussthis difference in terms of both the “scale problem” and the“timing problem”.2.5.Which of the two mutually exclusive projects would yourecommend that JK Products undertake?Why?