Q1. Project Alpha has the following cashflows for the next 4 years. Additionally, project Alpha requires $50,000 working capital for the initial investment year. However, due to various unforeseen circumstances, management believes that only 80% of the WC will be recovered in year 4. The similar projects have a cut off line of 3 years.

Year Net cash flow

0 (200 000)

1 50 000

2 60 000

3 110 000

4 20 000

80 000 Scrap value

Required:

(i) Calculate the payback period.

(ii) Redo the calculation with WC and Scrap value into consideration.

(iii) Based on your results in part (i) and (ii), what recommendation you can make and how do you justify that?

Q2. Project W requires the purchase of a machine costing 11000 plus an investment of 4000 in working capital. At the end of the machines five-year working life, it can be sold for 1000 as scrap. Project Ws net cash flows (excluding any of the above information) are forecasted as follows: Year Annual profit 1 2 000 2 2 000 3 2 000 4 1 000 5 0 What is the project's ROCE?