You are financial analyst of state owned company. The director of finance has asked you to...

  

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You are financial analyst of state owned company. The director of finance has asked you to analyse two proposed capital investments, Project A and B. each project has cost of N$11 000, and the cost of capital for each is 12%. The projects' expected cash flows are as follows: Year Project A (N$11 000) Project B (N$11 000) 6 500 3 500 3.000 3 500 3 000 3.500 1.000 3 500 Required: a) Calculate each project's payback period, Net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). (35 marks) b) Which project or projects should be accepted if they are independent? (2 marks) c) Which project should be accepted if they are mutually exclusive? (2 marks) d) How might a change in a change in cost of capital produce a conflict between NPV and IRR rankings of these projects? Would this conflict exist if r is 5% ? (4 marks) e) Why does the conflict exist? (2 marks) AWN2O3 0 You are financial analyst of state owned company. The director of finance has asked you to analyse two proposed capital investments, Project A and B. each project has cost of N$11 000, and the cost of capital for each is 12%. The projects' expected cash flows are as follows: Year Project A (N$11 000) Project B (N$11 000) 6 500 3 500 3.000 3 500 3 000 3.500 1.000 3 500 Required: a) Calculate each project's payback period, Net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). (35 marks) b) Which project or projects should be accepted if they are independent? (2 marks) c) Which project should be accepted if they are mutually exclusive? (2 marks) d) How might a change in a change in cost of capital produce a conflict between NPV and IRR rankings of these projects? Would this conflict exist if r is 5% ? (4 marks) e) Why does the conflict exist? (2 marks) AWN2O3 0

Answer rating: 100% (QA)

a Payback period Time it takes to make back the initial outlay Year Cash Flow A Cumulative Cash Flow A Cash Flow B Cumulative Cash Flow B 1 6500 6500 ... View the full answer