WN 1. 2. 3. 4. 5. 6. Explain the need for project evaluation using financial appraisal techniques. Explain the payback method and discuss its limitations. Explain the discounted payback method of investment appraisal and discuss its advantages and disadvantages. Calculate the payback period for a project with initial outlay of 14000 and cash inflow of 1000 in the first year, 4000 in the second year, 6000 in the third year, 4000 in the fourth year and 3000 in the fifth year. For the data above, find the Payback period when taking the present value of the returns into consideration. Discount rate on capital is 10%. It is calculated that replacing machine A with a more advanced machine B will generate an increase of cash inflow of 4500 per annum, machine A can be sold for 4000 and the cost of machine B fully installed is 25000. Calculate the payback period for this investment A machine is purchased for 40000 using capital costing 16%. It is estimated that the return over 8 years will be 5000, 10000, 10000, 15000, 20000, 15000, 10000 and 7000 respectively Determine the optimum replacement period. Hint The optimum replacement period will be when the NPV is zero 7. 8. The cost of a machine tool is 20000; payment is to be made in two instalments, 10000 immediately and 10000 a year later. Net earnings are expected to be 6000 per annum for 6 years. At the end of year 6 the machine will be sold for 3000. The discount rate on capital is 12%. Calculate the net present value of the machine tool and assess the project viability. The table below shows the initial investment and the net cash flows for three projects, year 0 refers to now, and the discount rate is 10%. 9. Year 0 1 2 Project A (m) -20.0 5.5 5.5 6.5 6.5 4.0 Project B (m) -20.0 4.5 6.5 7.5 5.5 0.0 Project C (m) -25.0 0.0 7.5 7.5 8.0 8.0 4 5 Assess the viability of each of the projects using the following appraisal techniques Payback Discounted payback Net present value