Based on the following information, answer questions 7 to 9 in this section. (Show your workings clearly, and round the figures to two decimal places, if applicable)

The Chief Executive Officer of KP Group appointed you to be the General Manager for the new investment project of Cool Resort. The total investment cost of the project is $8,492,000, in which 40% is financed by shareholders equity. After your professional analysis, you estimate that it will generate the following amounts of return, i.e. annual cash flows, in the first ten years. The required rate of return is 10%.

Year

1 2 3 4 5-10

Annual cash flows

$80,000 210,000 880,000 1,880,000 3,125,000

7. What is/are the need(s) of this projects capital funding? Are there any other capital funding needs for resort business? Justify your suggestions with examples. (10 marks)

8. Calculate the payback period and net present value (NPV) of the project. (10 marks)

9. Do you think payback period is a better investment appraisal technique than net present

value (NPV)? Why or why not?