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6 marksCapital Budgeting and Investment Appraisal

CAPE Accounting Unit 2 · 2010 · Paper 2 · Question 3(a)(i)

A company evaluates three investment projects (A, B, C) with given initial outlays and annual net cash flows. The cost of capital is 12% and a PVIF table is provided.

Compute the payback period for EACH investment project.

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Other parts of this question

  1. 3(a)(ii)Compute the net present value for EACH investment project.[15 marks]
  2. 3(a)(iii)Compute the profitability index for EACH investment project.[3 marks]
  3. 3(b)Rank the three investment projects based on the three measures computed in (a)(i) to (iii).[3 marks]
  4. 3(c)Briefly describe FOUR non-financial benefits that may accrue to the company if it decides to proceed with investment project B (emission reduction equipment).[8 marks]

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