The companys cost of capital is 8% and the applicable discount rates are as follows: Year 1 0.926 Year 2 0.857 Year 3 0.794 Year 4 0.735 Required: a. Calculate, in years and months, the simple payback period for each project. Assume that there are 12 months in a year, that each month has 30 days and that annual cash flows occur at an even rate throughout the year.

b. Calculate, to the nearest P1, the net present value of each project. Assume that net cash inflows are received at the end of each year and the anticipated re-sale value of equipment is achieved. (8 marks) c. Identify five advantages of NPV as a capital budgeting technique. (5 marks) d. Explain three reasons why capital budgeting decisions are important.

A company is considering investing in either Project A or Project B. Relevant financial information is as follows