Question
Red Earth plc is looking to take on a new investment. The company will evaluate two mutually exclusive projects, whose details are given below. The
| Red Earth plc is looking to take on a new investment. The company will evaluate two mutually exclusive projects, whose details are given below. The companys cost of capital is 12%. AED Millions | Project A | Project B |
| Initial Investment | (250) | (252) |
| Year 1 | 60 | 100 |
| Year 2 | 70 | 80 |
| Year 3 | 80 | 60 |
| Year 4 | 90 | 50 |
| Year 5 | 95 | 30 |
Calculate the Payback period
2. Calculate the Net Present Value (NPV) of both projects
3. Calculate the Internal Rate of Return (IRR) of both projects
4. Critically discuss the merits of each investment appraisal method, then discuss the result of the evaluations you have made of the two projects and advise the company which project should be undertaken
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