Trans Jamaica Corporation wishes to invest in one of three transport infrastructure projects X, Y and Z with initial outlays of $500 million, $390 million and $650 million respectively. Projects are expected to produce each year free after-tax cash flows of $195 million for project X, project Y is expected to generate $250 million and project Z $292 million. Each project has depreciable lives of 9 years. The required rate of return is 18%.

I. Use the Net Present Value Technique and determine the most appropriate investment for Delta Corporation. Justify your response. (9 marks)

II. State two benefits and two disadvantages of using the NPV. (4 marks)

III. Though the payback method for evaluating capital investments has some serious flaws, it is popular in business practice, showing up on most financial evaluation software packages.

IV. Outline three reasons why the payback method is popular in business? (3 marks)

V. Why would a manager not accept a project that has a positive net present value? (4 marks)What decision criterion would you recommend for:

a. Mutually Exclusive Projects and (3 marks)

b. Projects being evaluated under capital constraints. (2 marks)