Question: Question B1. (15 points) Years Project A () Project B () 0 (5000) (5000) 1 1000 2000 2 2500 2000 3 2500 2000 4 1500

Question B1. (15 points)

Years

Project A ()

Project B ()

0

(5000)

(5000)

1

1000

2000

2

2500

2000

3

2500

2000

4

1500

1000

The expected cash flows of two independent projects are given below. The cost of capital is 10 per cent.

Required

  1. Calculate the payback period, accounting rate of return, net present value of each project. Based on your calculations, discuss whether the projects should go ahead. Assume that the target value for payback is 3 years for project A and 2 years for project B.

(10 Marks)

  1. List advantages and disadvantages of payback period, accounting rate of return, net present value of each project.

(5 Marks)

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