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TOTAL 25 MARKS Question 4 When appraising capital expenditure projects the use of the discount factor is often misunderstood. Required: (Explain what the discount factor is and explain why it is used. [13 marks] c) Showing your workings, calculate the NPV of a stream of 500 to be received at the end of each of the next five years if the required rate of return is 4%. Explain what type of cash flow this is. [4 marks] (ii) Showing your workings, calculate the NPV of 1,500 to be received at the end of each year in perpetuity if the discount rate is 5%. [2 marks] (iv) Explain three reasons why the NPV method is considered as the superior capital investment appraisal method. [6 marks]