Sulimo plc is considering 3 mutually exclusive investment projects: A, B and C. Details of the projects are given below

Project Awill require an initial outlay on equipment of 50 million payable immediately. The project will have a life of four years and the equipment is expected to be worthless at the end of that time. Net cash inflows from the project over its four year life are predicted to be 17 million per annum.

Project B will require an initial outlay on equipment of 7,200,000, payable immediately. The project will have a life of four years and the equipment is expected to be worthless at the end of that time. Net cash inflows from the project over its four year life are predicted to be as follows:

Year	1	2	3	4
Cash Flow	1,000,000	2,400,000	3,800,000	4,300,000

Project C will require an initial outlay on equipment of 7,200,000, payable immediately. The project will have a life of four years and the equipment is expected to be worthless at the end of that time. Net cash inflows from the project over its four year life are predicted to be as follows:

Year	1	2	3	4
Cash Flow	4,300,000	4,300,000	1,075,000	20,000

The company requires a return of 11% on all new projects.

REQUIRED:

(a) i. Using the NPV model rank the projects and advise the company which, if any, to accept.

ii.. Using the IRR model rank the projects and advise the company which, if any, to accept.

(b) Compare the project rankings generated by the two models, explain any differences between them and advise the company which project to accept.

(c) Discuss briefly the relative merits of the two models.

Notes:Ignore Taxation. Assume all cash flows arise at the end of each year unless otherwise stated.