(i) ABC Company wants to evaluate two investment proposals. The first involves significant effort in new product development. The initial cost is $ 1 billion, and the company expects the project to generate relatively meagre cash flows in the first four years, followed by a big payoff in year 5. The second investment is a significant marketing campaign to attract new customers. It too has an initial outlay of $1 billion, but it generates substantial cashflows almost immediately, and lower level of cash flows in the later years. As a financial analyst working for the ABC Company calculate each projects NPV if the required rate of return is 10%. Which project will you recommend to the management of the company? Why?

Cash Flows	First Project ($ in millions)		Second Project ($ in millions)
Initial Outlay	-1 000	-1 000
Year 1	0	450
Year 2	50	350
Year 3	100	300
Year 4	200	200
Year 5	1,500	100
NPV	?	?

(ii) An investment requires initial investment of 24,000 that will be depreciated using the straight line method over four years. The Cash flows from the project are:

Year 1: 7,500

Year 2: 7,500

Year 3: 8,500

Year 4: 8,500

(i) What is the average contribution to net income across all four years?

(ii) What is the average book value of the investment?

(iii) What is the average accounting rate of return?