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13 marksInvestment Appraisal

CAPE Management of Business Unit 1 · 2010 · Paper 2 · Question 5(a)

XYZ Co. Ltd is considering investing in one of three projects, A, B or C. The initial cost and cash flows of each project are given in the table. The company has the option of borrowing the amount to cover the cost of either project at 11% interest per annum.

Compute the cumulative cash flow for EACH project.

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Other parts of this question

  1. 5(b)Compute the payback period, in years, to two decimal places, for EACH project.[6 marks]
  2. 5(c)Indicate, giving a reason, which project the company should accept based on payback period.[3 marks]
  3. 5(d)Assume the IRR (Internal Rate of Return) of the projects are: Project A: 11.5%, Project B: 8%, Project C: 15%. Based on the IRR, indicate, giving a reason,…[3 marks]

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