Question 4Bell Manufacturing is considering investing in a new project. Twoprojects have been put forward for consideration. The followinginformation has been gathered for each.Project AProject BInitial investment£500,000£600,000Life of project4 years4 yearsEstimated annual cash flows:YearProject AProject BCash flow per year1160,000180,000170,000190,0003110,000100,000490,000150,000Resale value of project30,00040,000The company estimates its cost of capital at 12% and uses straightline depreciation method for its plant and machinery.Requireda) Appraise the two Project using the following methods ofinvestment appraisal:i. Payback periodii. Accounting Rate of Returniii. Net present valueb) Discuss your findings and advise the company which projectthey should invest in if the projects are mutually exclusive (that isonly one project may be undertaken).

Payback period is the period which are required by the company in order to recover the costs which…

a) Appraise the two Project using the following methods of investment appraisal: i. Payback period ii. Accounting Rate of Return i. Net present value b) Discuss your findings and advise the company which project they should invest in if the projects are mutually exclusive (that is only one project may be undertaken).

a) Appraise the two Project using the following methods of investment appraisal: i. Payback period ii. Accounting Rate of Return i. Net present value b) Discuss your findings and advise the company which project they should invest in if the projects are mutually exclusive (that is only one project may be undertaken).

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter26: Real Options

Section: Chapter Questions

Problem 9SP

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