ZyadaPaisa Limited has £1,600,000 to invest. The company is considering a few investment projects but only has sufficient cash to accept one of them.
The projected cash flows of the most likely (project Solar) are shown below. The directors have asked for your help and advice in reaching a decision on whether to accept this project. The company requires that investments are required to achieve a minimum target of Accounting Rate of Return (ARR) of 18.0% and a maximum acceptable Payback period of 4 years. The company’s cost of capital is 9%.

  

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Cash flows Initial investment Cash inflows year 1 Cash inflows year 2 Cash inflows year 3 Cash inflows year 4 Cash inflows year 5 Cash inflow from sale of the investment at the end of year 5 Project Solar £000 A) 2 years 10 months. B) 3 years 4 months. C) 3 years 5 months. D) 4 years. (1600) 300 500 600 480 400 300 7. Using the information above, what is the Payback period for project Solar (Calculate to the nearest whole month)? Cash flows Initial investment Cash inflows year 1 Cash inflows year 2 Cash inflows year 3 Cash inflows year 4 Cash inflows year 5 Cash inflow from sale of the investment at the end of year 5 Project Solar £000 A) 2 years 10 months. B) 3 years 4 months. C) 3 years 5 months. D) 4 years. (1600) 300 500 600 480 400 300 7. Using the information above, what is the Payback period for project Solar (Calculate to the nearest whole month)?

Answer rating: 100% (QA)

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