DISCOUNT RATE 10% Project A Project B £ £ Initial Cost 60,000 60,000 Net Inflows Year1 20,000 50,000 Year2 30,000 20,000

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DISCOUNT RATE 10% Project A Project B £ £ Initial Cost 60,000
60,000 Net Inflows Year1 20,000 50,000 Year2 30,000 20,000 Year3
40,000 5,000 Year4 50,000 5,000 Year5 60,000 5,000 Required: a).
Calculate the ENPV and payback periods for projects. Evaluate which
of the two projects should be chosen giving your reasons. b).
Critically evaluate the differences between NPV and Internal Rate
of Return (IRR) as methods of discounted cash flow analysis and the
assumptions that underlie each method. Note the following. Yr 1
===0.10 Y
DISCOUNT RATE 10%
Project A
Project B
£
£
Initial Cost
60,000
60,000
Net Inflows
Year1
20,000
50,000
Year2
30,000
20,000
Year3
40,000
5,000
Year4
50,000
5,000
Year5
60,000
5,000
Required:
a). Calculate the ENPV and payback periods for
projects. Evaluate which of the two projects should be chosen
giving your reasons.
b). Critically evaluate the differences between NPV and
Internal Rate of Return (IRR) as methods of discounted cash flow
analysis and the assumptions that underlie each
method.
Note the following.
Yr 1 ===0.10
Yr2 ===0.20
Yr3 ===0.30
Yr4===0.20
Yr5===0.20
2 ===0.20 Yr3 ===0.30 Yr4===0.20 Yr5===0.20