Question 4

Darwish Group of Companies is planning to invest $ 800,000 on a project. The finance manager of Darwish Group of Companies has estimated the annual cash inflows of two different projects i.e. project A and Project B as below:

Particulars	Project A	Project B
Initial Investment	800,000	800,000
Annual Cash inflows
Year
1	160,000	200,000
2	180,000	220,000
3	160,000	200,000
4	180,000	240,000
5	140,000	240,000

You are the finance executive of Darwish Group of Companies. You are required to evaluate the above two projecting using

(a) Payback Period (10 marks)

(b) Net Present Value at 10% cost of capital (10 marks)

(c) Recommend which project is to be chosen by the company based on both the methods. (5 marks)

(10 + 10 + 5 = 25 marks)