Assume r= 12%

Q1 Mr Ali has an option of investing in one project from the proposed three different projects. The initial investment and cash flows are given below

years Cf - project 1 Cf - project 2 Cf - project 3

0 (10,000) (28,000) (22,000)

1 1000 3000 4000

2 880 7000 1000

3 6000 8000 1000

4 4000 12000 9000

5 2000 7500 11500

6 3650 6400 8900

a. Calculate payback for all three projects [1 marks]

b. Calculate discounted payback for all three projects [1 marks]

c. Calculate NPV for all three projects [2 marks]

d. Calculate profitability index for all three projects [1 marks]

e. Calculate IRR for all three projects [2 marks]

f. Write detailed comment on which project Mr Ali must invest on the basis of above calculated criteria's and why he must ignore the other projects. [5 marks]