Group Assignment Questions Due Date : $24$ April $2024$

Moleng Ltd is considering two investment projects, each of which requires an up$-$front expenditure of P$25$million. The risk$-$free debt has an expected return of $4\%.$ The slope of the characteristic line that describes the relationship between excess returns for project and those of the market portfolio is $1\mathrm{.}5.$ The return on the market portfolio is $8\%.$ The project will produce the following after$-$tax cash flows $($in million Pula$)$:

$\backslash$table$[[$Year$,$Project U$,$Project V$],[1,5,20],[2,10,10],[3,15,8],[4,20,6]]$

$($a$)$ What is the discounted payback period for each of the project?

$($b$)$ Briefly explain any two demerits of discounted payback period.

Group Assignment Questions Cont's

$($b$)$ Which project$/$s should be accepted if the firm's maximum acceptable payback is $2$ years, if the two projects are independent?

$($c$)$ If the two projects are mutually exclusive and the cost of capital is $5\%,$ which project should the firm undertake?

$($d$)$ If the two projects are mutually exclusive and the cost of capital is $15\%,$ which project should the firm undertake?

$($e$)$ Calculate the NPV$,$ IRR, MIRR and PI of each project and comment.

$($f$)$ What are the MIRR's advantages over regular IRR?