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Question 3 a) Two independent investment projects, with the following cash flows, are being considered by a company (assume that the cost of capital
Question 3 a) Two independent investment projects, with the following cash flows, are being considered by a company (assume that the cost of capital is 6% and the IRR is 12%): Year Project A Project B $'000 $'000 1 40 70 2 67 70 3 80 70 4 80 70 Determine the Initial Investment and the Net Present Value (NPV) for both projects. Which one of these projects should you choose. State your reason(s). (20 marks) b) If two mutually exclusive projects are being compared, the short-term project might have the higher ranking under the NPV criterion if the cost of capital is high. However, the long- term project might be deemed better if the cost of capital is low. Explain. c) Explain any FOUR (4) reasons for merger. (5 marks) (8.33 marks)
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