Qn. 4

Mr. Kiguli an Entrepreneur intends to start up a project with a minimum capital of Four million shillings (4,000,000/=). Because of the current economic crisis, he is faced with a hard decision of deciding which project to undertake. Below are the expected cash flows from two of the projects he wants to choose from.

Year	0	1	2	3	4	5	6	7
PROJECT X	(4,000,000)	500,000	350,000	850,000	420,000	700,000	900,000	750,000
PROJECT Y	(4,000,000)	900,000	1,030,000	1,500,000	900,000	850,000	655,000	700,000

You have been approached as a technical person to advise Mr. Kiguli.

Using the Payback period method, advise him on the best project and give reasons why you think that is the best project. ( 10 marks)

Assuming you opted to use the net present values method instead;

Given that discount rate is fixed at 15% would your decision in (a) above change 0r? (15 marks)