The directors of Spices Ltd are evaluating two investment projects $($both with a

four year life$)$ which involve the purchase of new machinery. The following data

is available:

Cost of capital is $10\%.$

Requirement

a$)$ Calculate the payback period for each project.

b$)$ Calculate the net present value of each project.

c$)$ Calculate the approximate Internal Rate of Return $($IRR$)$ of each project.

d$)$ Critically analyse which project should be undertaken based on your calculations

above.

e$)$ Critically analyse the relative merits of NPV$,$ IRR and payback as methods of

investment appraisal.