CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is forecast to generate annual cash flows of £300,000. Its estimated residual value after five years is £100,000. The Project B costs £120,000 with a forecast scrap value of £10,000. The Project B should generate annual cash flows of £40,000. The company operates a straight-line depreciation policy and discounts cash flows at 15 per cent p.a. CreditCard Ltd uses four investment appraisal techniques: payback period, net present value, internal rate of return and accounting rate of return (i.e. average accounting profit to average value of investment). IRR for Project A rounded to full percentage number is: (Hint: use 20% as the second discount rate)
CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is
CreditCard Ltd uses four investment appraisal techniques: payback period,
IRR for Project A rounded to full percentage number is:
(Hint: use 20% as the second discount rate)
| A. |
10% |
|
| B. |
15% |
|
| C. |
17% |
|
| D. |
21% |
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