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he directors of Kish Limited are considering two investment proposals, details of which are as follows. Project Alpha Project Beta 000 000 Initial investment 300

he directors of Kish Limited are considering two investment proposals, details of which are as follows.

Project Alpha

Project Beta

000

000

Initial investment

300

270

Net cash inflows year 1

50

90

Net cash inflows year 2

75

90

Net cash inflows year 3

100

90

Net cash inflows year 4

125

80

Net cash inflows year 5

150

80

Net sale proceeds of project assets at the end of year 5

60

20

Required

a) Using the above information, for each of the projects Alpha and Beta, calculate:

i) The Accounting Rate of Return.

ii) The Payback Period.

iii) The Net Present Value using a discount rate of 12%.

Note: Extract of Present Value Tables are on page 12.

(14 marks)

b) State, with reasons, which ONE of the two investment projects the directors of Kish Limited should accept. (5 marks)

d) Discuss why the Net Present Value method of investment appraisal is considered to be theoretically superior to other methods that are found in practice.

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