Wonder Plc is considering two investment projects in another city and the estimated cash flows are as follows: Year HOTELS HOUSING   £ (m) £ (m) 0    Capital outlay (200) (250) Net cash flow     1 130 130 2 60 120 3 80 120 4 100 80 4    Residual value 20 40   Required: (a) Assess the viability of these two projects using NPV and Payback period as the appraisal techniques and advise Wonder Plc’s Board of Directors accordingly. (b) Explain the importance of Payback period to the CEO.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Wonder Plc is considering two investment projects in another city and the estimated cash flows are as follows:

Year

HOTELS

HOUSING

 

£ (m)

£ (m)

0    Capital outlay

(200)

(250)

Net cash flow

 

 

1

130

130

2

60

120

3

80

120

4

100

80

4    Residual value

20

40

 

Required:

(a) Assess the viability of these two projects using NPV and Payback period as the appraisal techniques and advise Wonder Plc’s Board of Directors accordingly.

(b) Explain the importance of Payback period to the CEO.

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