M Limited is evaluating three possible investment projects and uses a 10% discount rate to determine their net present values.

A [N$',000) B [N$',000) C (N$'000)

Initial investment 400 450 350

Incremental cash flows:

Year 1 100 130 50

Year 2 120 130 110

Year 3 140 130 130

Year 4 120 130 150

Year 5 100 130 100

Net Present value 39 43 48

REOUIRED

3.1. Calculate the payback period of investment A

3.2. Discuss the advantages and disadvantages of payback as a method of investment appraisal.

3.3. Calculate the discounted payback period of investment B

3.4. Calculate the internal rate of return (IRR) of investment C

3.5. Evaluate the sensitivity of project B's net present value to the change in the following project variables, assuming that the above figures are based on 2000 units at the selling price of N$100 per unit and variable costs at N$35 per unit,

i. Initial investment

ii. Sales volume

iii. Sales price

iv. Variable costs

TOTAL MARKS 25