Answer all questions Each question carries equal marks QUESTION 1 You have been asked by BCM Ltd to analyse two projects, A and B. Each project costs 10,000, and the company's cost of capital is 12 percent per annum. The expected net cash flows are as follows: Year Project A (E) Project B () 6,500 3,500 2 3,000 3,500 3 3,000 3,500 1.000 3.500 4 Required: a) Calculate the following for each project: i) Net present value ii) Modified internal rate of return iii) Discounted payback period (18 marks) b) Which project(s) should be accepted if they are independent? Explain why. (3 marks) Critically evaluate whether a change in the cost of capital might produce a conflict between the net present value and modified internal rate of return rankings of the two projects. (9 marks) c) Total: 30 marks (QUESTIONS CONTINUE ON NEXT PAGE) Page 2 of 8 for det andere Pret Chow Chow pret APAn rompre pound boundalin pound 100001 -10000 10000 10000 500 0800 58025350008? 106225 30000.0 2301 200 10000702150 be 10000600330 Net Presente 2675 Both projecte ha investment of 0.00 pounds Senegutie chino out of 10,000 pounds 2. Cashows from Factor of S112 out of for... for year-0.737.home. Which Adding calows from Year 1 to 4 and can uw 10,000 pounds from it us Present Vale of Pro 9675 3. For project cash now are some for each year 250 pondo Presentate interest factor of an ordinary ily by 2.500 to 1.620.50 s as present of cashows present value of Project 10,429.50 - 10.000 20.50 pounds Modified internal rate of return as the rate at which of those Present value of cash outflows in each project 10.000 Terminal value of cash flows is the future value of all this the are manure value of cash flow from Year 10 Future Cashflow value of prot from Cashow Me Prompt pounds pour pound 1.4O643253800 77967205 100003782 3800 2006112300 Future Was Terminal For Project A. Puture Values factored from the Follows for your cash flows the number of periods of period 3 years from year to your 4), FVFX for years, and your chow your way from tom period. FOR 3 cash flow is way from terminal period So Porrar cash flow is terminal value Adding a future value of cash flow terminal values 1225450 pounds 2. For Proiect since the cash flows are nowe Rural of an ordinary nuty 24 years and multiply by 3500 to get terminal Modified one of retumis here at which For 20.000 PV 13,364.50 pounds 10.000 17.256.50/e13254.500.00 1725451.725R16-10 10.000 PV of 16,726.50 pounds 10,000 16,726.50/16,726.500.000 1672786727WR11372-1872.77 Discounted Payback period is the period of time will take to recover the cash utflows based on discoured cash flows each year discounted period Cath towed cash flows For Prict initial cash flow is 10.000 pounds Yardcore cashindows 800 pounds. So,remaining to be covered Year 10000 20450479560 Year 2 diented cash inows 23. mingine recovered after year 2195.50-23011804.50. Indiscounted casino200 My covering the remaining investment 180450. So, the discounted period Present of Cashflows of cash flow chow rompt women to be W pounds pound -10000 -10000 1000 2006 No JO 012 21 2136 2315 cash flows from outflow to Cashflows from project pro in pounds 12% -10000 red 10000 - 10000 1255 27805 3500 0. 4065 300 2 From the methods above, we see the resterande pa back period. Therefore, Project A should be chosen