PARTI: Read the following, understand, interpret and solve the problems.

1. Suppose your firm is evaluating three potential new investments (all with 3-year project lives). You calculate for these projects: X, Y and Z, have the NPV and IRR figures given below:

Project X: NPV = $8,000 IRR = 8%

Project Y: NPV = $6,500 IRR = 15%

Project Z: NPV = – $500 IRR = 20%

A) Justify which project(s) would be accepted if they were independent? (5 marks

b) Justify which project(s) would be accepted if they were mutually exclusive? (5 marks)

2. Evaluate three reasons why IRR is not the best technique for evaluating proposed new projects.(5 marks)

3. A firm with a market value of $1,000,000 is considering a project with the following cash flows.

year1	year 2	year 3	year 4	year 5
-10,000	19,000	30,000	41,550	50000

Find the payback by using a discount rate of 8%, and 16%. (5 marks)

4. Your firm has the opportunity to expand into one of two new markets, and you have been asked to conduct the financial analysis. The firm can enter only one of these markets now, so the projects are mutually exclusive. The initial outlays are $240,000 for Project A and $225,000 for Project B. The forecast cash flows are shown below.

	year1	year 2	year 3	year 4
PROJECT A	20000	50,000	100,000	150,000
PROJECT B	145,000	60,000	40,000	30,000

1. What is the NPV of each project at discount rates of 6%, 12% and 18%. (5 marks)
2. Work independently and Clearly explain the conclusions to be drawn from the NPV profile.