There are two competing proposals for the redevelopment of a piece of vacant land in Accra....

 

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There are two competing proposals for the redevelopment of a piece of vacant land in Accra. One is to construct an office block on the site and the other is to construct a casino. You have been asked to give advice on which is the better investment. The company's weighted average cost of capital is 18%. The two projects generate the following cash flows Year 0 1 2 3 4 Office -300 -30 90 180 215 Casino -300 -400 50 100 800 a) Calculate the Net Present Value of each project using a discount rate of 6% and comment on your results b) Calculate the payback of period of each project and comment on your results c) Based on the internal rate of return criteria, explain the advice you would give to your client if the internal rate of returns for Office and Casino are 16% and 17.8% respectively d) What are the strengths and weaknesses of the NPV and the payback period investment decision criteria? There are two competing proposals for the redevelopment of a piece of vacant land in Accra. One is to construct an office block on the site and the other is to construct a casino. You have been asked to give advice on which is the better investment. The company's weighted average cost of capital is 18%. The two projects generate the following cash flows Year 0 1 2 3 4 Office -300 -30 90 180 215 Casino -300 -400 50 100 800 a) Calculate the Net Present Value of each project using a discount rate of 6% and comment on your results b) Calculate the payback of period of each project and comment on your results c) Based on the internal rate of return criteria, explain the advice you would give to your client if the internal rate of returns for Office and Casino are 16% and 17.8% respectively d) What are the strengths and weaknesses of the NPV and the payback period investment decision criteria?