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Media limited company is looking to invest in two project which are independent. The initial investment for each project is $50,000 and the life
Media limited company is looking to invest in two project which are independent. The initial investment for each project is $50,000 and the life of the projects is for five years, as shown in the below table. The cost of capital (interest rate) is 5%. PROJECT MIPROJECT N YEAR ($50 000) $50 000) YEAR 115 000 22 000 YEAR 212 000 16 000 YEAR 310 000 10 000 YEAR 410 000 15 000 YEAR 514 000 17 000 REQUIRED: (ai) Calculate the Payback period for each project 4 marks (aii) based on payback period, which project should be chosen? 2 marks (b) Calculate Net Present Value for each project 14 marks (c) profitability index for each project 2 marks (d) base on your response in part (b) Which project e) Explain the following terms: Unlimited funds Capital rationing Independent projects Mutually exclusive projects Ranking should be chosen and why? 3 marks
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