Answer Happy

Question 1 A solar panel production firm, Charles Ltd, is considering an investment in new solar production technology. The new investment would require initial funding of €4 million today and further expenditure on manufacture of €1m in each of the years 6 and 7. The net cash inflow for the years 1 to 4 is €2.34 million per year. Some equipment could be sold at the end of year 5 when the production ends and together with the cash flows from operations would produce a net cash flow of €4.85 million. The required rate of return of Soleil SA is 12 per cent and Soleil has been known to use a payback period of 2 years in the past. However, the firm's managers believe that this payback period may be too short. Required: Evaluate the investment using the following four investment appraisal criteria and explain your recommendation. a) NPV (10 marks) b) Payback period (10 marks) c) Discounted payback period (10 marks) d) Profitability index (10 marks)