QUESTION TWO

Kwacha Mukweni Limited is considering two mutually exclusive new projects to launch. The companys discount rate is 15 percent.

Project A: Construction of Kitwe Filling Station under BOT (Build Operate & Transfer) project	The filling station will take an initial investment of K450,000 at time 0. Next five years (1 5) years of sales will generate a consistent cash flow of K160,000 per year. Transfer of the Kitwe Filling Station at year 6 will terminate further cash flows from this project.
Project B: Leasing of Mpulungu Port under an SPV (Special Purpose Vehicle)	The renovation and bringing to use of the Port will take an initial investment of K200,000 at time 0. Cash flow at year 1 is K80,000. In each subsequent year cash flow grow at 15 percent per year because of increased traffic in the Great Lakes region. Expiration of the lease at year 6 will terminate further cash flows from this project.

Based on each of the following below, which project should be taken and state the implications of your decision;

(a) Payback Period?

(b) Net Present Value?

(c) Internal Rate of Return?