(a) An initial investment of £6000 has a return of £8000 after 6 years. Assuming an annual interest rate of 5%, calculate the net terminal value (NTV) of the investment. Give your answer to the nearest £.

(b) A project requires an initial investment of £20,000. There is an interim return of £10,000 in year 4, with a final return of £15,000 in year 6. Assuming an annual discounting rate of

6%, calculate the net present value (NPV) of the project. Give your answer to the nearest £.

(c) The internal rate of return (IRR) of an investment is 6%. Comment on how this might be used to evaluate the profitability of the investment.

(d) A new piece of equipment is to be purchased. This will be used for five years and then scrapped. There are three options under consideration:

Option X has an initial cost of £4,000 and an annual operating cost of £800

Option Y has an initial cost of £3,000 and an annual operating cost of £700

Option Z has initial cost £5,000 and annual operating cost £600

Use an appropriate economic appraisal method to recommend an option. Include in your answer calculations of any economic appraisal methods, and an explanation of your reasoning.

You may assume that the cost of capital is 8% per year and that the scrappage value for all options is zero.

(e) A planned project has a regular outgoing of £3,000 in each of months 2,4, and 6. There is an additional outgoing of £4,000 in month 4. Income from the project is £5,000 due in each of months 3,5,7 and 9.

Analyse the cash flow and identify any periods of particular concern.

Answer rating: 100% (QA)

a An initial investment of 6000 has a return of 8000 after 6 years Assuming an annual interest rate of 5 calculate the net terminal value N TV of the investment Give your answer to the nearest ANS WER ... View the full answer