PGBM01 - MBA Financial Management And Control (2015-16 Trm1 A)Pgbm01 workshop 9 question updated...
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Workshop Question You are the finance director of an imaginary company Pluto PLC. You have been given the following information relating to two potential projects, but due to limited capital funds only one can be selected. The following data is available for each project: Project A Project B Initial Investment £250,000 £250,000 Cash Inflows: Year 1 £75,000 £90,000 Year 2 £65,000 £55,000 Year 3 £100,000 £90,000 Year 4 £125,000 £150,000 The depreciation for both projects is £50,000 per year. The residual value for both projects is £50,000. You are required to calculate:- a. Payback Period (PP). b. Accounting Rate of Return (ARR). c. Net Present Value (NPV). d. Internal Rate of Return (IRR). Comment on the results you have found assessing which of the two projects should be chosen. Additionally discuss the benefits and limitations associated with each of the investment appraisal techniques that have been used. Discount factors of 14% & 25% are given below:- Discount Factor 14% Discount Factor 25% Year 0 1.000 1.000 Year 1 0.877 0.800 Year 2 0.769 0.640 Year 3 0.675 0.512 Year 4 0.592 0.4096
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Transcript of PGBM01 - MBA Financial Management And Control (2015-16 Trm1 A)Pgbm01 workshop 9 question updated...
Workshop Question
You are the finance director of an imaginary company Pluto PLC. You have been given the following information relating to two potential projects, but due to limited capital funds only one can be selected. The following data is available for each project: Project A Project B Initial Investment £250,000 £250,000 Cash Inflows: Year 1 £75,000 £90,000 Year 2 £65,000 £55,000 Year 3 £100,000 £90,000 Year 4 £125,000 £150,000 The depreciation for both projects is £50,000 per year. The residual value for both projects is £50,000. You are required to calculate:-
a. Payback Period (PP). b. Accounting Rate of Return (ARR). c. Net Present Value (NPV). d. Internal Rate of Return (IRR).
Comment on the results you have found assessing which of the two projects should be chosen. Additionally discuss the benefits and limitations associated with each of the investment appraisal techniques that have been used. Discount factors of 14% & 25% are given below:- Discount Factor 14% Discount Factor 25% Year 0 1.000 1.000 Year 1 0.877 0.800 Year 2 0.769 0.640 Year 3 0.675 0.512 Year 4 0.592 0.4096
