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Assignment (a) Efo Kwaku, the proprietor of Efo and Sons Limited, is faced with the problem of which of Project 1 costs GH5,000 and Project
Assignment (a) Efo Kwaku, the proprietor of Efo and Sons Limited, is faced with the problem of which of Project 1 costs GH5,000 and Project 2 costs GH4,500. Both projects involve the purchase of the two mutually exclusive investment projects, Project 1 and Project 2, he should choose. equipment, the useful life of which is four years. The net cash flows for the two projects are provided in the table below: Net Cash Flow (GHC) Project Year 1 Year 2 Year 3 Year 4 1 2,550 2,450 1,700 2 1,240 1,550 2,100 The equipment bought for Project I will have a scrap value of GH500 at the end of its Slife, while the equipment bought for Project 2 will have a scrap value of GH400 at the end of its life. 1,400 3,800 i. iii. iv. Find the payback period for each project. Establish the net present value for each project using discount rate of 20%. Establish the net present value for each project using discount rate of 25%. Determine the internal rate of return for each project. Using the payback criterion and the internal rate of return criterion advice the proprietor on the project he should undertake, giving reasons for your choice of project. V. 70
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