Three possible projects would each require an initial investment of

£12,000. The expected net cash flows from each one are

Years 1 2 3 4 5 £ £ £ £ £
X 2,400 6,000 6,000 4,000 —
Y 6,000 6,000 3,600 1,200 —
Z 3,600 4,800 4,800 4,800 3,600

(a) Compare the three projects by means of (i) payback;
(ii) rate of return based on initial capital;
(iii) net present value based on a cost of capital of 10 per cent;
(iv) yield.

(b) Give reasoned advice to management on which project they should undertake.

Transcribed Image Text:

1 2 X Y Z Years 3 4 5 2,400 6,000 6,000 4,000 6,000 6,000 3,600 1,200 3,600 4,800 4,800 4,800 3,600