Question 2: Vigorous Lad is a retailer specialised in fitness supplies. The financial manager is appraising three capital investment proposals, projects A, B and C. The following information is available: Project A is investing in a new machine casting 45.000 initially, it will generate the following cash flows for the coming four years, at the end of the fourth year the machine would be sold for 5,000 Cash flows for the coming four years 2 year 15.000 10.000 5.000 Project B requires an outlay of 45,000 on capital equipment and generates the following profits over the coming three years Year Profit 1 2 3 35.000 25.000 10,000 Profits include an annual charge of 5,000 for depreciation Project C requires an outlay of 60,000 and ammual cash inflows of 20,000 for four years. The company has a cost of capital of 10% for all projects. Ignore taxation PORTSMOUTH icp Required: Assess on financial grounds whether the three projects should be accepted stating clearly whether each must be accepted or rejected, using a. the payback period method I b. the NPV (10 marks) (15 marks) (5 marks) II. Calculate the IRR of project A