RYCH Limited has £800,000 to invest. The company is considering two investment projects A and B but only has sufficient cash to accept one of them. The projected cash flows of the two potential investments are presented below. The directors have asked for your help and advice in reaching a decision on which investment project to accept. RYCH Limited has a cost of capital of 9%. A B Cash flows £000 £000 Initial investment (800) (800) Cash inflows year 1 250 150 Cash inflows year 2 300 250 Cash inflows year 3 200 300 Cash inflows year 4 200 240 Cash inflows year 5 150 200 Cash inflow from sale of the investment at the end of year 5 100 150 Question 18 For both investment projects calculate payback period. Question 19 For both investment projects calculate The accounting rate of return Net present value Question 20 Using the information on cash inflows and the results of your investment appraisal calculations, briefly discuss which project should be selected by the directors, providing a justification for your recommendation.
RYCH Limited has £800,000 to invest. The company is considering two investment projects A and B but only has sufficient cash to accept one of them. The projected cash flows of the two potential investments are presented below. The directors have asked for your help and advice in reaching a decision on which investment project to accept. RYCH Limited has a cost of capital of 9%.
|
|
A |
B |
|
Cash flows |
£000 |
£000 |
|
Initial investment |
(800) |
(800) |
|
Cash inflows year 1 |
250 |
150 |
|
Cash inflows year 2 |
300 |
250 |
|
Cash inflows year 3 |
200 |
300 |
|
Cash inflows year 4 |
200 |
240 |
|
Cash inflows year 5 |
150 |
200 |
|
|
100 |
150 |
Question 18
For both investment projects calculate payback period.
Question 19
For both investment projects calculate
- The accounting
rate of return Net present value
Question 20
Using the information on cash inflows and the results of your investment appraisal calculations, briefly discuss which project should be selected by the directors, providing a justification for your recommendation.
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