5. The company has identified TWO investment projects. The details are as follows. Corporate tax stands at 28%. Investment project related information: Name of project: Project E ($20,000 Investment cost) Year 1 2 3 4 5 6 7 Cash Flow $5,500 6,500 8,000 10,000 13,000 15,000 17,000 Name of project: Project H ($20,000 Investment cost) Year 1 2 3 4 5 Cash Flow $17,000 15,000 13.000 9,000 6.000 a. The following questions apply corporate tax and depreciation based on straight line method, assume zero residual value. a Determine the net present value of the Projects E' and 'Project H' based on a zero discount rate. (12 marks) b. Determine the net present value of the Projects E' and 'Project H' based on a 9 percent discount rate (6 marks) c. Compute the internal rate of return on Project E and the internal rate of return on Project H using interpolation method. Graph a net present value profile (draw in excel spread sheet) for the two investments using appropriate scale on vertical and horizontal axis. (12 marks) d. If the two projects are independent in nature, what would your acceptance or rejection decision be if the discount rate is 8 percent? (Use the net present value profile for your decision; no actual numbers are necessary). (4 marks) e. e If the two projects are mutually exclusive, what would be your decision if the cost of capital is: (1) 12 percent, (2) 15 percent, (3) 18 percent (4 marks) (Total 38 marks) 5. The company has identified TWO investment projects. The details are as follows. Corporate tax stands at 28%. Investment project related information: Name of project: Project E ($20,000 Investment cost) Year 1 2 3 4 5 6 7 Cash Flow $5,500 6,500 8,000 10,000 13,000 15,000 17,000 Name of project: Project H ($20,000 Investment cost) Year 1 2 3 4 5 Cash Flow $17,000 15,000 13.000 9,000 6.000 a. The following questions apply corporate tax and depreciation based on straight line method, assume zero residual value. a Determine the net present value of the Projects E' and 'Project H' based on a zero discount rate. (12 marks) b. Determine the net present value of the Projects E' and 'Project H' based on a 9 percent discount rate (6 marks) c. Compute the internal rate of return on Project E and the internal rate of return on Project H using interpolation method. Graph a net present value profile (draw in excel spread sheet) for the two investments using appropriate scale on vertical and horizontal axis. (12 marks) d. If the two projects are independent in nature, what would your acceptance or rejection decision be if the discount rate is 8 percent? (Use the net present value profile for your decision; no actual numbers are necessary). (4 marks) e. e If the two projects are mutually exclusive, what would be your decision if the cost of capital is: (1) 12 percent, (2) 15 percent, (3) 18 percent (4 marks) (Total 38 marks)
