The directors of Mylo Ltd are currently considering two mutually exclusive investment projects. Both projects are concerned with the purchase of new plant. The following data are available for each project: Project Project 1 (?) 2 (?) Cost (immediate outlay) 100,000 60,000 Expected annual net p r ofit (loss) Y ear 1 29,000 18,000 2 (1,000) (2,000) 3 2,000 4,000 Estimated r esidual value 7,000 6,000 The company has an estimated cost of capital of 10 per cent and employs the straight-line method of depre- ciation for all fixed assets when calculating net profit. Neither project would increase the working capital of the company. The company has sufficient funds to meet all capital expenditure requirements. Required (a) Calculate for each project: (i) the net p r esent value (ii) the app r oximate internal rate of r eturn (iii) the p r ofitability index (iv) the payback period (b) State which, if an y, of the two investment p r ojects the di r ectors of Mylo Ltd should accept, and wh y. (c) State, in general terms, which method of investment appraisal you consider to be most appropriate for evaluating investment projects and why.
The directors of Mylo Ltd are currently considering two mutually exclusive investment projects. Both
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