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2 marksInvestment Appraisal

CAPE Management of Business Unit 1 · 2012 · Paper 2 · Question 5(a)(ii)

A corporation is considering investing in Project A or Project B. Both project cash flows and discount factors at 10% per annum are provided.

Identify the project in which the company should invest based on the payback method, giving ONE reason for your choice.

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Other parts of this question

  1. 5(a)(i)a)Calculate the payback period for Project A.[3 marks]
  2. 5(a)(i)b)Calculate the payback period for Project B.[3 marks]
  3. 5(b)(i)Calculate the net present value (NPV) for Project A and Project B.[8 marks]
  4. 5(b)(ii)Identify the project in which the company should invest based on the NPV method, giving ONE reason for your choice.[2 marks]
  5. 5(c)(i)State TWO advantages and ONE disadvantage of using the NPV method.[3 marks]
  6. 5(c)(ii)State TWO advantages and ONE disadvantage of using the payback method.[3 marks]
  7. 5(d)Identify ONE investment appraisal method, other than the net present value and the payback method.[1 mark]

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