MMM enterprise is considering two investment projects:

Project: A B Project

Life 6 years 5 years

Initial investment in plant and equipment 220,000 150,000

Net cash flows:

Year 1 25,000

Year 2 28,500

Year 3 33,000

Year 4 44,500

Year 5 67,500

Year 6 155,500

Net Present Value (10%) (GIVEN) 15,512 project B

Internal Rate of Return (approx.) (GIVEN) 17.9% B

(a) Determine the net present value of project A using required rate of return on projects of 10% (show all workings). (5%)

(b) Determine the internal rate of return on project A (5%)

(c) On the basis of your answers to (a) and (b), advise the company on which investment should be undertaken (assume the hurdle rate = required rate of return for Chamberlain).

i) IF BOTH PROJECTS ARE INDEPENDENT

ii) IF BOTH PROJECTS ARE MUTUALLY EXCLUSIVE