Hertford Chemicals Plc is considering the investing in a new chemical processing plant, but has a choice of manufacturing one of two products on it. For the two proposals the company needs to spend BD 100000 as initial investment. Details of the two proposals are summarized below:

Year

Proposal A

Earnings after taxation are as follows in BD

Proposal B

Earnings after taxation are as follows in BD

@10%

1

2

3

4

5

22000

30000

45000

23000

12000

8000

14000

32000

46000

32000

.909

.826

.751

.683

.621

Required:

A. Use the given 10 % PV factor to calculate the Net present value for the two projects.(6 marks)

B. On the basis of these measures only, which project would you recommend?(2 marks)

C. Combine what are the quantitative and financial/ financial factors, should you take in to consideration when declining between projects? (2 marks)

2. Flanders ltd is trying to decide which project should be taken up, out of the two possible investments. The initial investments would amount to BD 80000

The net cash inflows from the project under consideration are:

- Project has uneven cash flow as follows in 5 years.

Year 1- BD 40000

Year 2- BD 20000

Year 3- BD 18000

Year 4- BD 10000

Year 5- BD 4000

Required:

1. Calculate the accumulated capital at the end of 5th year( 4 marks)

2. Calculate the Payback period(4 marks)

3. State the recommendation status of the given project. (2 marks)