QUESTION ONE

II. MJ Corporation is considering an investment project that requires an initial cash outlay of K1.6 million. It is expected that the project will generate annual net cash inflows of K0.55 million for the next five years. Asset disposal proceeds of K0.1 million are also expected at the end of the five years. Determine the financial viability of this project using the Net Present Value (NPV) method of evaluation. [10 Marks]

III. The expected cash flow at the end of the year on an investment is K150,000. The alternative riskless investment in Treasury-bills is expected to pay 5%. If you require a risk premium of 10%, how much will you be willing to pay for this investment?