Scribd Logo
Upload

Welcome to Scribd!

  • Inv 1

    Uploaded by

    Aik Luen Lim
    11 views1 page
    Project M has a purchase cost of €350,000 and estimated cash flows of -€20,000 in year 1, -€5,000 in year 2, €210,000 in year 3, and €60,000 in year 4. Project N has a purchase cost of €600,000 and estimated cash flows of €50,000 in year 1, €125,000 in year 2, €90,000 in year 3, and €30,000 in year 4. The company uses straight-line depreciation and has a cost of capital of 15%. The document provides discount factors to calculate net present value and internal rate of return for each project.

    Original Description:

    Financial Management

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Project M has a purchase cost of €350,000 and estimated cash flows of -€20,000 in year 1, -€5,000 in year 2, €210,000 in year 3, and €60,000 in year 4. Project N has a purchase cost of €600,000 and estimated cash flows of €50,000 in year 1, €125,000 in year 2, €90,000 in year 3, and €30,000 in year 4. The company uses straight-line depreciation and has a cost of capital of 15%. The document provides discount factors to calculate net present value and internal rate of return for each project.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    11 views1 page

    Inv 1

    Uploaded by

    Aik Luen Lim
    Project M has a purchase cost of €350,000 and estimated cash flows of -€20,000 in year 1, -€5,000 in year 2, €210,000 in year 3, and €60,000 in year 4. Project N has a purchase cost of €600,000 and estimated cash flows of €50,000 in year 1, €125,000 in year 2, €90,000 in year 3, and €30,000 in year 4. The company uses straight-line depreciation and has a cost of capital of 15%. The document provides discount factors to calculate net present value and internal rate of return for each project.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    QUESTION 4

    A company is considering two altemative investment projects both Of which require the purchase of new
    equipmeni with a lifespan of four years. The following information relates to the two projects:

    M
    Proiect Prolect N

    €000 €000
    Purchase cost ofequipment - Year 0 350 600

    Es\\rna\b$assD\rN\T\gPrs\r\s.
    Year 1 (20) 50
    Year 2 (5) 125
    Year 3 210 90
    Year 4 60 30

    Estimated disposal value of equipment 70 80

    The company's depreciation policy is to write off the cost of equipment using the straight-line method.

    Cost of capital is 15olo Per annum.

    Discount factors: Year 10% 15% '20% 25%


    1 0.909 0.870 0.833 0.800
    .2 0.826 0.756 0.694 0.640
    3 0.751 0.658 0.579 0.512
    4 0.683 0.572 0.482 0.410

    REQUIRED

    (a) Calculate for each of Project M and Project N, the:

    (i) payback period


    (7 marks)
    (ii) net present value
    (5 marks)
    (iii) intemalrate of retum.
    (6 marks)

    (b) Recommend which project should be undertaken giving reasons for your decision.
    (2 marks)

    (Total20 marks)

    3024l2l11lMA Page'10 of 15

    You might also like