Global Pharmacy Plc is considering 4 mutually exclusive one-year projects. Global Pharmacy Plc obtained the following information:

Return Probability of return occurring

Project 1 -10,000 0.4

70,000 0.6

Project 2 95,000 0.1

30,000 0.9

Project 3 38,000 1

Project 4 40,000 0.8

80,000 0.2

Calculate the expected return of the projects and advise which project to choose. The cost of capital is 10%

a. Project 2

b. Project 3

c. Project 4

d. Project 1

Lily Ltd considers a project which requires 20,000 investment immediately. The target discounted payback period is 4 years. Assume the cost of capital is 15%. Using the discounted payback method decide whether Lily Ltd should accept the project, taking into account the following cash flows that the project is expected to generate:

Year Cash flows,

1 10000

2 12000

3 6000

4 4000

5 3000

a. 2.57 years, so should be accepted

b. 2.57 years, so should be rejected

c. 1.33 years, so should be accepted

d. 1.33 years, so should be rejected

Greenhome Ltd., a construction firm, is considering to replace an excavator which has 10 years of useful life. Greenhome is considering three options, outlined in the table below:

Replacement cycle Every 3 years Every 5 years Every 8 years

PV of cost of cycle, 45,000 58,000 74,000

Assess how frequently the asset should be replaced if the cost of capital is 15%

a. Every 8 years

b. Every 10 years

c. Every 3 years

d. Every 5 years