Two Investment projects are being considered. @ Explain why comparing the two discounted payback periods or comparing the two payback periods are not generally appropriate ways to choose between two investment projects. 131 The two projects each involve an initial investment of 3m. The incoming cash flows from the two projects are as follows: Project A In the first year, Project A generates cash flows of 0.5m. In the second year it will generate cash flows of 0.55m. The cash flows generated by the project will continue to increase by 10% per annum until the end of the sixti year and will then cease. Assuno that all cosh flows are received in The middle of the year. Project B Project generales cash flows of 0.64in per annum for six years. Assum that all cash flows are received continuously throughout the year. (1) (a) Calculate the payback period from Project 3. (b) Calculate the discounted payback period from Project B at a rate o! interest of 4% per annum effective. 151 (ill) Show that there is at least one "cross-over point for Projects A and B between 0% per annum effective and 4% per annum effective where the cross-over point is defined as the rate of interest at which tho net present value of the two projects is equal. 161 (iv) Calculate the duration of the incoming cash flows from Projects A and B at a rate of interest of 4% per annum effective. 161 (v) Explain why the net present value of Project A appears to fall more rapidly than the net present value of Project B as the rate of interest increases. 12) Total 22 Two Investment projects are being considered. @ Explain why comparing the two discounted payback periods or comparing the two payback periods are not generally appropriate ways to choose between two investment projects. 131 The two projects each involve an initial investment of 3m. The incoming cash flows from the two projects are as follows: Project A In the first year, Project A generates cash flows of 0.5m. In the second year it will generate cash flows of 0.55m. The cash flows generated by the project will continue to increase by 10% per annum until the end of the sixti year and will then cease. Assuno that all cosh flows are received in The middle of the year. Project B Project generales cash flows of 0.64in per annum for six years. Assum that all cash flows are received continuously throughout the year. (1) (a) Calculate the payback period from Project 3. (b) Calculate the discounted payback period from Project B at a rate o! interest of 4% per annum effective. 151 (ill) Show that there is at least one "cross-over point for Projects A and B between 0% per annum effective and 4% per annum effective where the cross-over point is defined as the rate of interest at which tho net present value of the two projects is equal. 161 (iv) Calculate the duration of the incoming cash flows from Projects A and B at a rate of interest of 4% per annum effective. 161 (v) Explain why the net present value of Project A appears to fall more rapidly than the net present value of Project B as the rate of interest increases. 12) Total 22