Question 1

a)Management is considering two hotel projects. Project A will be in Belize and Project B will be in Cuba. (14 Marks)

Initial Investment Project A US$ Project B US$

Year 0 865,000 750,000.00

Year 1 316,000 200,000.00

Year 2 330,000 200,000.00

Year 3 280,000 185,000.00

Year 4 250,000 390,000.00

Year 5 250,000 551,000.00

The cost of capital for Project A is 12% and the cost of capital for Project B is 18%.Calculate;

1.The discounted payback period and The net present value for Project A

2.The discounted payback period and The net present value for Project A

3.The IRR for Project A & Project B

4.If the projects are mutually exclusive which project should be selected.