Question is in attachment.

A division of University of Zambia Pic has been allocated a fixed capital sum by the main board of directors for its capital investment during the next year. The division's management has identified three capital investment projects, each potentially successful, each of similar size, but has only been allocated enough funds to undertake two projects. Projects are not divisible and cannot be postponed until a later date. The division's management proposes to use portfolio theory to determine which two projects should be undertaken, based upon an analysis of the projects' risk and return. The success of the projects will depend on the growth rate of the economy. Estimates of project returns at different levels of economic growth are shown below. Economic growth Probability of Estimated return (%) (annual average) occurrence Project 1 Project 2 Project 3 Zero 0.2 2 5 6 2 per cent 0.3 8 9 10 4 per cent 0.3 16 12 6 per cent 11 0.2 25 15 11 You are required to: a) Use the above information to evaluate and discuss which two projects the division is likely to undertake. All relevant calculations must be shown. (14 marks) b) State the weakness of the evaluation technique used in a) above. What further information might be useful in the evaluation of these projects? (4marks) c) Suggest why portfolio theory is not widely used in practice as a capital investment evaluation technique. (3 marks) d) Recommend, and briefly describe, an alternative investment evaluation technique that might be applied by the division. (4 marks) (Total: 25 marks)