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    Tutorial 5 Questions

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    JKF

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    Tutorial 5 Questions

    Uploaded by

    JKF
    2 views1 page

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    Copyright:

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    2 views1 page

    Tutorial 5 Questions

    Uploaded by

    JKF

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    2022 EF209 - Tutorial 5 (week 8)

    Questions

    1. A project has an outlay of $40 million, with the following cashflows for the next 5
    years. If the company’s minimum required rate is 10% appraise this investment by
    calculating:
    a. NPV
    b. IRR
    c. Discounted payback on the basis that the company has a target payback of

    Year 1 2 3 4 5
    Cashflows 20 million 15 million 10 million 5 million 5 million

    2. The directors of Spices Ltd are evaluating two investment projects (both with a
    four year life) which involve the purchase of new machinery. The following data
    is available:

    Project Saffron Tumeric


    Cost (immediate outlay) (120,000) (200,000)
    Estimated Cash inflow/outflow
    Year 1 63,000 106,000
    Year 2 24,000 45,000
    Year 3 35,000 50,000
    Year 4. 38,000 60,000

    Cost of capital is 10%.

    Requirement

    a) Calculate the payback period for each project.

    b) Calculate the net present value of each project.

    c) Calculate the approximate Internal Rate of Return (IRR) of each project.

    d) Critically analyse which project should be undertaken based on your calculations


    above.

    e) Critically analyse the relative merits of NPV, IRR and payback as methods of
    investment appraisal.

    3. Calculate the yield of a bond that pays 5% interest and currently trading at €998 with 5
    years remaining to maturity.

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