Question 1: The directors of Bagle Ltd are currently considering two mutually exclusive investment projects. Both projec

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Question 1:
The directors of Bagle Ltd are currently considering two
mutually exclusive investment projects. Both projects are concerned
with the purchase of new plant. The following data are available
for each project:
Project 1
(£000)
Project 2
(£000)
Initial cost
(180)
(100)
Estimated annual cash flows:
Year 1
100
70
Year 2
30
30
Year 3
100
25
The company has an estimated cost of capital of 8%.
Required
a) Evaluate the
financial viability of the above projects using the following
techniques:
b)
Explain which measure should be used to make the investment
decision in the two project.
Question 2
Egg Sauce Company is evaluating a project that has the estimated
cash flows given here:
Cashflows
Initial
investments
(£1,000)
Year
1
£1,000
Year
2
£1,000
Assume that the cost of capital is15%.
Required
Question 3:
Hick Limited is considering investing in a new project, for
which the following information is available:
Initial investment
(£000)
Year 1
(£000)
Year 2
(£000)
Year 3
(£000)
Year 4
(£000)
Cash flow
(500)
150
300
180
130
Depreciation
125
125
125
125
What three flaws are in this decision based on average
accounting return?