(Total: 25 Marks) Question Four The directors of AB Ltd are considering whether to accept one of two mutually exclusive projects and, if so, which one to invest in. Each project involves an immediate outlay of 500,000 and estimates of subsequent cash flows are as follows: Net cash inflow at the end of: Year 1 Year 2 Year 3 Year 4 Year 5 Project A 200,000 140,000 140,000 140,000 60,000 Project B E 60,000 100,000 140,000 200,000 300,000 AB Ltd's cost of capital is 10%. The present values for 1 discounted at 10% and 15% are: Year 1 2 3 4 5 10% 0.909 0.826 0.751 0.683 0.621 15% 0.870 0.756 0.658 0.572 0.497 Required: a) For each project calculate the following: The Payback Period The Net Present Value when discounted at 10% and 15% The Internal Rate of Return (4 marks) (6 marks) (8 marks) b) Evaluate the results you have obtained and recommend which project should be undertaken. Discuss what other factors should be taken into consideration. (7 marks) End of Question Paper (Total: 25 marks)