The company estimates that its cost of capital is 15%. It is considering whether to invest in Shining Zambian, which has the following cash flows and will make the decision on the basis of the Net present value of the project:

Estimated Cash Flows of the Project of Shining Zambian Limited

Year	Cash flows in (K Millions)
0	(100,000)
1	50,000
2	30,000
3	70,000
4	20,000

Note:

Zambians abroad investments hopes to recoup its investment and payback any amounts owed to external stakeholders within 3 years, Equipment and Machinery owned by Shining Zambian is deemed to have zero residual value, life span of this Machinery and Equipment is 4 years, current value of this Machinery and Equipment is K850, 000

For each answer below explain and advice the economic implications for the Zambians abroad Investment group and the meaning of your answer based on the note above.

1. Should the project be undertaken based on Net Present Value (NPV)? [10 Marks]

2. Calculate the Payback Period (PBP) of the investment in months. [5 Marks]
3. Calculate the Accounting Rate of Return (ARR) for this project. [5 Marks]
4. Calculate the Internal Rate of Return (IRR) for the project. [5 Marks]

As the Financial Manager of your Investment group (Zambians abroad Inv) the group has asked if it is possible to apply the Portfolio theory in diversifying their portfolio