a). Barclays bank imposes a payback cutoff of three years for its international investment projects. If the bank has the following two projects available, should it accept either of them? YEAR CASH FLOW (A) CASH FLOW (B) 0 -$50,000 -$70,000 1 35,000 15,000 2 21,000 22,000 3 10,000 31,000 4 5,000 240,000
a). Barclays bank imposes a payback cutoff of three years for its international investment projects. If the bank has the following two projects available, should it accept either of them?
YEAR CASH FLOW (A) CASH FLOW (B)
0 -$50,000 -$70,000
1 35,000 15,000
2 21,000 22,000
3 10,000 31,000
4 5,000 240,000
- b) You are trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $18 million, which will be
depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,632,000, $2,106,500, $1,941,700, and $1,298,000 over these four years, what is the project’s average accounting return (AAR)?
Question 2
(a) Better Times Limited has two mutually exclusive projects, A and B. The company is considering which one is a better option if the shareholders require a return of 12%. The cash flows from the two projects are provided in the table below
|
Year |
Project A |
Project B |
|
|
¢ |
|
|
0 |
-100,000 |
-100,000 |
|
1 |
30,000 |
49,000 |
|
2 |
50,000 |
49,000 |
|
3 |
70,000 |
49,000 |
Using the following investment appraisal methods, advise the company on which project to choose
Net Present Value (NPV),IRR - Profitability Index (PI)
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