Question 1

1. The following cash flow data has been supplied relating to two investment projects, only one of which may be selected. Both projects have an initial cash outflow followed by cash inflows during years 1 to 5. Calculate the NPV and IRR for each project separately and recommend which project you would undertake. The cost of capital is 10%

Cash flow data	Project A	Project B
Initial capital expenditure	(200,000)	(250,000)
Year 1	50,000	50,000
Year 2	90,000	70,000
Year 3	90,000	100,000
Year 4	100,000	90,000
Year 5	70,000	40,000

(b) Discuss the advantages and disadvantages of the four main investment appraisal methods (accounting rate of return, payback period, NPV and IRR).