Calculate the Payback Period, Profitability Index and Net Present Value of both the projects.

 To calculate the payback period, we need to determine the number of years it will take for each project to recover its initial investment.

For Project A: Year 1: Rs. 30,000 Year 2: Rs. 50,000 Year 3: Rs. 60,000 Year 4: Rs. 65,000 Year 5: Rs. 40,000

Total cash inflow after depreciation and tax: Rs. 2,45,000

Payback period for Project A = 1 + (Rs. 35,000 / Rs. 65,000) = 1.54 years

For Project B: Year 1: Rs. 60,000 Year 2: Rs. 1,00,000 Year 3: Rs. 65,000 Year 4: Rs. 45,000

Total cash inflow after depreciation and tax: Rs. 2,70,000

Payback period for Project B = 1 + (Rs. 15,000 / Rs. 45,000) = 1.33 years

To calculate the profitability index, we need to calculate the present value of each project's cash inflows and divide it by the initial investment.

For Project A: PV of cash inflows = (Rs. 30,000 / 1.08) + (Rs. 50,000 / 1.08^2) + (Rs. 60,000 / 1.08^3) + (Rs. 65,000 / 1.08^4) + (Rs. 40,000 / 1.08^5) PV of cash inflows = Rs. 1,87,231.54

Profitability Index for Project A = Rs. 1,87,231.54 / Rs. 1,80,000 = 1.04

For Project B: PV of cash inflows = (Rs. 60,000 / 1.08) + (Rs. 1,00,000 / 1.08^2) + (Rs. 65,000 / 1.08^3) + (Rs. 45,000 / 1.08^4) PV of cash inflows = Rs. 2,11,128.21

Profitability Index for Project B = Rs. 2,11,128.21 / Rs. 1,80,000 = 1.17

To calculate the net present value, we need to subtract the initial investment from the present value of cash inflows.

For Project A: NPV = Rs. 1,87,231.54 - Rs. 1,80,000 = Rs. 7,231.54

For Project B: NPV = Rs. 2,11,128.21 - Rs. 1,80,000 = Rs. 31,128.21

Therefore, based on the above calculations, Project B is more favorable as it has a shorter payback period, higher profitability index, and a higher net present value.

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