Question 1) ABS Company has asked you to evaluate two projects with details shown below:- a) Making use of the information given, calculate the following for each project and briefly comment upon the results of using each technique. The company depreciates the asset over 5 years using the straight line method. There is no residual value. i) Payback period (6 marks) ii) NPV (10 marks) iii) Profitability index (8 marks) iv) Accounting Rate of Return (6 marks) Project A Cash Flow Project B Cash Flow Year 0 (Capital Investment) Year 1 Year 2 Year 3 Year 4 Year 5 (1,000) 240 288 346 414 498 (10,000) 2,300 2,640 3,040 3,500 4,020 Cost of capital IRR 10% 20% 10% 15% b) Using the internal rate of return for evaluating investment opportunities has the basic weakness that it does not give attention to the amount of the capital investment, because a return of 20% on an investment of 1,000 may be given a higher ranking than a return of 15% on an investment of 10,000. Comment on the above statement, using the information in part a), and on the problem of ranking investment proposals. (10 marks)