Question: (b) A company is evaluating a project for which the costs and expected cash flows are as follows: Year 0 Year 1 Year 2 Year

(b) A company is evaluating a project for which the costs and expected cash flows are as follows: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 -$2,200,000 $400,000 $535,000 $650,000 $700,000 $880,000 The company uses a discount rate of 10% for all projects. Given the information: i. Determine NPV of the project. (2 marks) Determine payback period of the project. (1.5 marks) Determine discounted payback period of the project. (2 marks) iv. Will the payback period change if the discount rate is changed to 8%? (0.5 mark) (b) PRA Ltd is evaluating between two mutually exclusive projects. The expected cash flows for the projects are as follows: Project A: Year 0 Year 1 Year 2 Year 3 -$2,000,000 $900,000 $1,135,000 $2,000,000 Project B: Year 0 Year 1 Year 3 -$2,000,000 $1,400,000 $1,135,000 $1,000,000 The company uses a discount rate of 10% for all projects. Given the information: Which project should be chosen considering NPV as the capital budgeting criteria? (3 marks) Which project should be chosen considering payback period as the capital budgeting criteria

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