TASK TWO

The directors of Mauvillac Ltd are currently considering investment in a particular project. Two

projects, Acrylic $($A$)$ and Pastel $($P$),$ with the following cash flows are to be considered.

Assume a cost of capital of $8\%$ per annum.

$($a$)$ Calculate the following for both projects:

Payback period

Net Present Value

Discounted payback

Internal Rate of Return

Profitability Index

$(10$ marks$)$ The directors of Mauvillac Ltd are currently considering investment in a particular project. Two projects, Acrylic $($A$)$ and Pastel $($P$),$ with the following cash flows are to be considered.

Assume a cost of capital of $8\%$ per annum.

Year

Project A Cash Flows $

Project P Cash Flows $

$0$

$-1400$

$-1100$

$1$

$500$

$400$

$2$

$600$

$400$

$3$

$400$

$400$

$3$

$4$

$200$

$400$

Residual value $$ year $4$

$140$

Nil

$($a$)$ Calculate the following for both projects:

$1.$ Payback period

$2.$ Net Present Value

$3.$ Discounted payback

$4.$ Internal Rate of Return

$5.$ Profitability Index