accounting

Q2: The directors of Keyhan Ltd are currently considering two mutually exclusive investment projects. Both projects are concerned with the purchase of new plant. The following data are available for the projects: Pr_jcct 1 Project 2 Cost (immediate outlay] 100,000 60,000 Expected annual net prot (loss): 9 000 3,000 as) 2.000) woo 4,000 Estimated residual value 7,000 6,000 The company has an estimated cost of capital of 10 per cent and uses the straight-line method of depreciation for all fixed assets when calculating net prot. Neither project would increase the working capital of the company. The company has sufcient funds to meet all capital expenditure requirements. 1 - - - D Required: (a) Calculate for each project: (i) The net present value (ii) The approximate internal rate of return (iii) The payback period (b) State which, if any, of the two investment projects the directors of Keyhan Ltd should accept, and why. (0) State, in general terms, which method of investment appraisal you consider to be most appropriate for evaluating investment projects, and why. Discount factors Year 10% 15% 17% 1 0.909 0.870 0.855 2 0.326 0.7560731 3 0.751 0.658 0.624