Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The finance director of Ruslan plc is considering several investment projects and has collected the following information about them: Projects Estimated Initial outlay Cash inflow

The finance director of Ruslan plc is considering several investment projects and has collected the following information about them:
Projects Estimated Initial outlay Cash inflow
Year 1 Cash inflow
Year 2 Cash inflow
Year 3
A 200,00050,000150,000150,000
B 450,000357,000357,000357,000
C 550,000863,000853,000853,000
D 170,000278,000278,000 Nil
E 200,000250,000250,000250,000
F 330,000332,000332,000 Nil
Project D and E are mutually exclusive. The capital available for investment is limited to 1m in the first year. All projects are divisible, and none may be postponed or repeated. The cost of capital of Ruslan PLC is 15%.
a. Discuss the possible reasons Ruslan plc may be limited as to the amount of capital available for investment in its projects.
b. Determine which investment project the finance director of Ruslan plc should choose to maximize the return on the capital available for investment. If the projects were not divisible, would you change your advice to the finance director?
c. Discuss the arguments for and against each investment appraisal method (NPV, IRR, ROCE, and Payback) to support your decision advice.
d. Critically discuss the reasons why net present value is the method of investment appraisal preferred by academics? Has the internal rate of return method now been made redundant?The finance director of Ruslan plc is considering several investment projects and has collected the
following information about them:
Project D and E are mutually exclusive. The capital available for investment is limited to E1m in
the first year. All projects are divisible, and none may be postponed or repeated. The cost of capital
of Ruslan PLC is 15%
a. Discuss the possible reasons Ruslan plc may be limited as to the amount of capital available for
investment in its projects.
b. Determine which investment project the finance director of Ruslan plc should choose to
maximize the return of the capital available for investment. If the projects were not divisible,
would you change your advice to the finance director?
c. Discuss the arguments for and against each investment appraisal method (NPV, IRR, ROCE,
and Payback) to support your decision advice.
d. Critically discuss the reasons why net present value is the method of investment appraisal
preferred by academics? Has the internal rate of return method now been made redundant?
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Options Futures And Other Derivatives

Authors: John C. Hull

8th Edition

0132164949, 9780132164948

More Books

Students also viewed these Finance questions

Question

Design a vga checkerboard in vhdl using a 25MHz clock.

Answered: 1 week ago

Question

Explain the various kinds of retirement plans.

Answered: 1 week ago

Question

Explain workplace flexibility (work-life balance).

Answered: 1 week ago

Question

Discuss global issues in employee benefits.

Answered: 1 week ago