The parts a), b), and c) below are independent questions which do not relate to each other.

1. A company is considering investing in Project X. The project requires an initial investment of $780,000 and is expected to generate $23,000 in one year, $45,000 in 2 years, and $182,000 at the end of each year from the end of year 5 to the end of year 13 inclusive. The cost of capital is 10% p.a. effective.

Using this information answer parts i) and ii) below

1. Calculate the net present value (NPV) of the project. You must use the annuity formulas when possible. (Round your answer to the nearest cent). (3 marks)

ii.According to your calculation above, should the company invest in Project X? Provide your reason. (1 mark)

1. Project Swan requires an initial investment of $550,000 and is expected to generate the following cash flows at year-end.

Year	1	2	3	4	5	6	7
Cashflow	$75,000	$128,500	$136,200	$145,400	$225,600	$286,700	$321,300

Calculate the payback period in years for the project. Round your answer to 2 decimal places. (2 marks)

1. Project A and Project B are two mutually exclusive projects with conventional cash flows. The internal rate of return (IRR) for Project A is 17.22%. The internal rate of return (IRR) for project B is 23.92%. The net present value (NPV) for each project are calculated at 5% p.a. effective and 10% p.a. effective cost of capital as shown below:

Cost of capital	NPV ($) (Project A)	NPV ($) (Project B)
5%	2,328.45	1,939.24
10%	1,229.90	1,304.56

Four companies are considering investing in the projects. The cost of capital for each company is listed below:

Company	Cost of capital
Company Tortoise	4%
Company Rabbit	12%
Company Ostrich	18%
Company Cheetah	24%

Pick one piece of advice from the list below for each company. Write the letter in the Advice column. (4 marks)

1. Project A Only
2. Project B Only
3. Both Projects
4. Neither Projects
5. Not Sure. More information is required.

Company	Cost of capital	Advice
Company Tortoise	4%
Company Rabbit	12%
Company Ostrich	18%
Company Cheetah	24%