Vistech is contemplating two different projects and decides to perform a financial analysis to determine which...

 

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Vistech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative. Project A and B have the cash flows as shown in the table below. Vistech uses a required rate of return of 10% and an inflation rate of 4%. (i) (ii) Compute the payback in years and the net present value for both projects and offer advice as to the best course of action. (8 marks) Year 0 1 2 3 4 5 Project A -250,000 75,000 155,000 200,000 175,000 160,000 Project B -400,000 125,000 230,000 288,000 265,000 225,000 Briefly state two (2) shortcomings of simple payback period. (2 marks) Vistech is contemplating two different projects and decides to perform a financial analysis to determine which is more financially lucrative. Project A and B have the cash flows as shown in the table below. Vistech uses a required rate of return of 10% and an inflation rate of 4%. (i) (ii) Compute the payback in years and the net present value for both projects and offer advice as to the best course of action. (8 marks) Year 0 1 2 3 4 5 Project A -250,000 75,000 155,000 200,000 175,000 160,000 Project B -400,000 125,000 230,000 288,000 265,000 225,000 Briefly state two (2) shortcomings of simple payback period. (2 marks)

Answer rating: 100% (QA)

Solution i Compute the payback in years and the net present value for both projects Payback Period Project A Year 0 250000 Year 1 75000 Year 2 155000 ... View the full answer