XYZ Plc is evaluating three projects. The projected cash flow is in below.


Year Project A Project B Project C
0 -100,000 -100,000 Unknown
1 0 42,000 60,000
2 0 42,000 50,000
3 13,3000 42,000 10,000


(a) XYZ Plc is now considering undertaking project A or project B. The risks of these two projects, however, are unknown. Given the limited information, which project would you recommend to XYZ Plc? Use IRR method to explain your answer.

(b) Project C which has a payback period of 2.05 years is also made available to XYZ Plc. If the cost of capital for this project is 5% per annum, what is the Net Present Value (NPV) for project C?


(c) (i) Based on the payback period rule, which project, A, B or C, would you recommend to XYZ Plc?


(ii) Calculate the discounted payback periods for all three projects using 5% per annum as the cost of capital. Which project would you now recommend to XYZ Plc based on discounted payback rule?


(iii) If projects A and B are mutually exclusive, which project is preferred here? Briefly explain based on your answers from (a) to (c)(ii).