Q6

Question 6 Mrs. Frances is running a manufacturing business entity. She is considering whether to accept one of two mutually exclusive investment projects, Venus and Neptune. Each project requires an up-front expenditure of 620 million. You estimate that the cost of capital is 12% and that the investments will produce the following after-tax cash flows (in millions of pounds): Year 1 2 3 4 Project Venus Millions Pounds 120 190 280 170 Project Neptune Millions Pounds 210 180 220 250 a) Calculate the payback period for project Venus and project Neptune and decide which project is worthwhile to accept, giving your own justification(s). [8 marks] b) Calculate the Net Present Value (NPV) for project Venus and project Neptune a and recommend which project to invest in, giving your own justification(s). [12 marks] c) Calculate the Internal Rate of Return (IRR) for Project Venus and recommend if the project is worthwhile to accept. [5 marks] [Total 25 marks]