Question $8$

Company Epsilon Limited is considering an investment proposal for two projects, Project Sigma $()$ and Project Lamda $().$ The associate cash flows of the two projects are as follows $($all figures in Euros$)$:

$\backslash$table$[[$Year$,0,1,2,3,4],[$Project $,-6,000,800,1,800,2,600,3,000],[$Project ${?}^{{?}^{?}},-6,000,3,000,2,400,1,600,1,600]]$

I i$.$ At discount rate of $5\%$ calculate the discounted pay$-$back period of each project.

ii$.$ Using the same discounted rate find the Net Present Value $($NPV$)$ of each project.

iii. If Epsilon Limited requires a minimum annual return of $12\mathrm{.}5\%$ will the Company invest in both projects, in project $,$ in project $,$ or neither of the two projects and why?

iv$.$ What is the Internal Rate of Return $($IRR$)$ of each project?

v$.$ If the two projects are mutually exclusive in which of the two projects Epsilon Limited will invest and why on the basis of:

a$.$ The simple pay$-$back method of investment appraisal?

b$.$ The discounted pay$-$back method of investment appraisal?

c$.$ The NPV method of investment appraisal?

d$.$ The IRR method of investment appraisal?