Scenario1: Clayton Associates (LO 1a) Rayon Associates is an investment bank who are currently evaluating three options for their client, the BG Group. The options are called Project Diamond, Project Coral and Project Copper. Rayon Associates have hired you to help them make the correct recommendations to their client. They have provided you with the information given below and have asked you to answer a set of questions.

Q 1. The cost of capital, initial outlay and the cash inflows of each project are shown in the table below. Calculate the values below and fill in the table: a. NPV of each project, and provide a brief explanation of its viability. Your answer should include the acceptance criteria for NPV and explain how time value money is related to this investment decision. (7 marks as allocated in the table) b. IRR for each project, and provide a brief explanation for your decision. (5 marks as allocated in the table)

10% Cost of capital Allocati ons of Marks Project Diamond Project Coral Project Copper Initial ($2,400,000) ($2,100,000) ($1,500,000) outlay Inflow year 250,000 140,000 350,000 410,000 310,000 150,000 450,000 520,000 160,000 520,000 480,000 140,000 600,000 510,000 150,000 520,000 610,000 160,000 540,000 625,000 125,000 650,000 130,000 710,000 650,000 400,000 150,000 700,000 190,000 70,000 a. NPV (1 x 3 = 3marks) Based on the NPVS calculated, provide a brief explanation of its viability. Your answer should include the acceptance criteria for NPV and explain how time value of money is related to this investment decision. (4 marks) b. IRR (1 x 3) = 3 marks Based on the calculations of IRR, provide a brief explanation for your decision? (2 marks)