Question 3 Paperboy Wallpaper is a company that produces wallpaper in bright contemporary colours for sale in the wholesale and retail markets. The product development director has identified two capital investment projects which she believes will help the company appeal to new markets and so improve its profitability. Project Dolphin concerns the development of a type of bedroom wall covering, and Project Galley concerns a type of kitchen wall covering. The company only has the investment capital to undertake one of the two projects. Your line manager believes that Project Galley is the better option as it generates an accounting rate of return (ARR) of 20% compared to 14% for Project Dolphin Details of the investments required and the expected additional cash flows resulting from the two projects over their five-year lives are as follows: Project Dolphin Project Galley Initial capital expenditure 700.000 600,000 Net Cash flows forecasts: Year 1 300.000 180.000 Year 2 250.000 150,000 Year 3 200.000 160,000 Year 4 165,000 180,000 Year 5 160.000 150,000 Resale value of project 100,000 130,000 The company's cost of capital is currently 10%. Required: a) Appraise the two projects using the following methods of investment appraisal: Payback period (4 marks) Net present value (8 marks) (Present Value tables are provided at the end of this paper). b) Based upon your calculations from part (a), state, with reasons, which, if any, of the two investment projects the directors of Paperboy Wallpaper should accept (3 marks) c) Discuss what factors, other than financial factors, that the Paperboy Wallpaper company should consider before embarking on such a project. (5 marks) d) Critically discuss the usefulness of the accounting rate of return method of makina.annitelmastnant decisions