b) Recommend with reasons, which project you would undertake (if either). (5 Marks)

c) Calculate the payback period for Project X only. (5 Marks)

SW Buses plc is considering an investment in a new fleet of buses to meet growing demand. The acquisition of the fleet will cost 450,000. The management accountant has estimated the following cash flows: Operating costs are fixed, but exclusive of depreciation. In addition, it is forecast that the fleet will be sold off for _220,000 at the end of the Year 5 . The company's cost of capital is 15% Required: a) What is the NPV of this investment? (15 Marks) b) If the fixed operating costs are found to be compiled incorrectly and are understated by 10%, what is the revised NPV of the investment? (5 Marks) c) If in addition to the error in operating costs, the contributions are found to be understated by 2096 , but only 50,000 is received for the disposal of the fleet, what is the revised NPV of the project? ( 5 Marks) SW Buses is also considering which of the two mutually exclusive projects it should undertake. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10 per cent and the net after tax cash flows of the projects are as follows