Balfe Ltd is a technology company and is considering a number of different capital projects. An initial outlay of €120,000 is payable immediately, to purchase machines with a life of three years. There are two investment options - Project A or Project B - which will yield cash-flows over three years as follows: Project A Project B Projected Cash inflows Projected Cash inflows Year 1 30,000 73,000 Year 2 50, 000 55,000 Year 3 80,000 61,000 The company has a cost of capital of 11%. Required: a) For Project A and Project B calculate: i. Net present Value (NPV) ii. Discounted Payback iii. Accounting Rate of Return (ARR) iv. Estimated Internal Rate of Return (IRR) b) Critically evaluate which project should be undertaken.

Balfe Ltd is a technology company and is considering a number of different capital projects. An initial outlay of €120,000 is payable immediately, to purchase machines with a life of three years. There are two investment options - Project A or Project B - which will yield cash-flows over three years as follows: Project A Project B Projected Cash inflows Projected Cash inflows Year 1 30,000 73,000 Year 2 50, 000 55,000 Year 3 80,000 61,000 The company has a cost of capital of 11%. Required: a) For Project A and Project B calculate: i. Net present Value (NPV) ii. Discounted Payback iii. Accounting Rate of Return (ARR) iv. Estimated Internal Rate of Return (IRR) b) Critically evaluate which project should be undertaken.

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Question

Balfe Ltd is a technology company and is considering a number of different capital projects. An
initial outlay of €120, 000 is payable immediately, to purchase machines with a life of three years.
There are two investment options - Project A or Project B - which will yield cash-flows over three
years as follows: Project A Project B Projected Cash inflows Projected Cash inflows Year
1 30,000 73,000 Year 2 50, 000 55,000 Year 3 80,000 61,000 The company has a cost of capital of
11%. Required: a) For Project A and Project B calculate: i. Net present Value (NPV) ii. Discounted
Payback iii. Accounting Rate of Return (ARR) iv. Estimated Internal Rate of Return (IRR) b) Critically
evaluate which project should be undertaken.

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