Question 1 (CLO 5) (Total 25 marks) Colours Corporation is considering investing in one of two projects Blue or Green The initial cost and net cash inflows from each project are shown below The opportunity cost for both projects is 10 per cent Cash FlowProject BlueProject GreenInitial Cost1,000,0001,080,000Net Cash Inflows Year 1200,000280,000Year 2260,000320,000Year 3260,000320,000Year 4240,000320,000Year 5240,000240,000 Discount factors at 10 per annum YearFactor10 909120 826430 751340 683050 6209 Required Calculate the payback period for each project (7 marks) Based on the payback method, identify the project in which the company should invest, giving ONE reason for your choice (1 mark) Calculate the Accounting Rate of Return on initial capital for each project (4 marks) Calculate the Accounting Rate of Return on average capital for each project (4 marks) Calculate the net present value (NPV) for project blue and project green (8 marks) Based on the NPV, identify the project in which the company should invest, giving ONE reason for your choice (1 mark)

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Question 1 (CLO 5) (Total 25 marks) Colours Corporation is considering investing in one of two projects Blue or Green . The initial cost and

Question 1 (CLO 5) (Total 25 marks)

Colours Corporation is considering investing in one of two projects Blue or Green. The initial cost and net cash inflows from each project are shown below. The opportunity cost for both projects is 10% per cent.

Cash FlowProject BlueProject GreenInitial Cost1,000,0001,080,000Net Cash Inflows Year 1200,000280,000Year 2260,000320,000Year 3260,000320,000Year 4240,000320,000Year 5240,000240,000

Discount factors at 10% per annum

YearFactor10.909120.826430.751340.683050.6209

Required:

Calculate the payback period for each project. (7 marks)
Based on the payback method, identify the project in which the company should invest, giving ONE reason for your choice. (1 mark)
Calculate the Accounting Rate of Return on initial capital for each project. (4 marks)
Calculate the Accounting Rate of Return on average capital for each project. (4 marks)
Calculate the net present value (NPV) for project blue and project green (8 marks)
Based on the NPV, identify the project in which the company should invest, giving ONE reason for your choice (1 mark)