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Q. 3 DArcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each project is:

Q. 3 DArcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each project is:

Project cash flows

Project

A

B

C

m

m

m

Initial outlay

(17)

(20)

(24)

1 years time

11

12

9

2 years time

5

7

9

3 years time

7

7

11

4 years time

6

6

13

The business has a cost of finance of 10% and the capital expenditure budget for next year 25 million.

Required:

  1. Calculate the NPV of each project.

  1. Which investment project(s) should the business undertake assuming:
    1. Each project is divisible
    2. Each project is indivisible.

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