A firm is considering two investment projects, $Y$ and $Z.$ These projects are NOT mutually

exclusive. Assume the firm is not capital constrained. The initial costs and cashflows for these

projects are:

$($a$)$ Using a discount rate of $9\%$ calculate the net present value for each project. What decision

would you make based on your calculations?

$($b$)$ How would your decision change if the discount rate used for calculating the net present

value is $15\%?$

$($c$)$ Calculate an approximate IRR for each project. Assume the hurdle rate is $9\%.$ What decision

would you make based on your calculations?

$($d$)$ Calculate the payback period for each project. The company looks to select investment projects

paying back in $2$ years. What decision would you make based on your calculations? $(3$ marks$)$

$($e$)$ Critically discuss Net Present Value $($NPV$),$ Internal Rate of Return $($IRR$)$ and payback

period as criteria for investment appraisal.