1. Explain by giving example the meaning of Independent and Mutually exclusive projects (3 Marks)

2. Horrigan Industries must choose between a gas powered and an electric powered fork lift truck for moving materials in its factory. These Equipments are mutually inclusive as they perform the same function. The electric powered truck will cost more but will be less expensive to operate. It will cost Sh. 22,000/ whereas the gas powered truck will cost sh. 17,500/. The required rate of return that applies to both investments is 12% pa. The life for both trucks is estimated to be six (6) years during which the electric powered truck will generate net cash flows of sh.6,290/ per year and the gas powered truck will generate net cash flows of sh.5,000/=

Required

1. Compute the pay- back period of each project

2. Calculate the Net Present Value (NPV) of each of the projects

3. Calculate the Internal Rate of Return ( IRR) of each project

4. Given that the projects are mutually exclusive; which project would you advise Capital Investments undertake?