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6 marksInvestment Appraisal

CAPE Management of Business Unit 1 · 2014 · Paper 2 · Question 5(a)(i)

Effective Solutions Ltd is evaluating three investment projects (A, B, and C) with a cost of capital of 12%. Initial investments, annual cash inflows, durations, and discount factors are provided.

Compute for EACH project the payback period.

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Other parts of this question

  1. 5(a)(ii)Compute for EACH project the net present value.[9 marks]
  2. 5(b)Suggest to the company the best investment option based on the net present value method. State a reason to support your answer.[2 marks]
  3. 5(c)Identify TWO possible sources of finance that Effective Solutions Ltd could consider for the investment project chosen.[2 marks]
  4. 5(d)Outline THREE factors that Effective Solutions Ltd should consider when choosing a source of finance for the project chosen.[6 marks]

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