### Selection of one of two mutually exclusive projects

Assignment Help Finance Basics
##### Reference no: EM131213940

Part A

For the following exercise, complete the calculations below. Evaluate different capital investment appraisal techniques by completing the calculations shown below:

Bongo Ltd. is considering the selection of one of two mutually exclusive projects. Both would involve purchasing machinery with an estimated useful life of 5 years.

Project 1 would generate annual cash flows (receipts less payments) of £200,000; the machinery would cost £556,000 with a scrap value of £56,000.

Project 2 would generate cash flows of £500,000 per annum; the machinery would cost £1,616,000 with a scrap value of £301,000.

Bongo uses straight-line depreciation. Its cost of capital is 15% per annum.

Assume that all cash flows arise on the anniversaries of the initial outlay, that there are no price changes over the project lives, and that accepting either project will have no impact on working capital requirements.

Assess the choice using the following methods by completing the calculations shown below:

• ARR
• NPV
• IRR
• Payback period

 Project 1 Project 2 ARR (see workings) 33% ??? NPV (£'000) ??? 210 IRR 25% ??? Payback Period (yrs) ??? 3.2

ARR workings (Project 1)

 Cash flows 200 Less: depreciation (see below) 100 Accounting profits 100

These profits are the same each year in this question.

Annual depreciation (Cost - SV) / 5

 (556,000 - 56,000) / 5 100

Average NBV of investments

 (556 + 56) /2 306 ARR 33%

Be sure to demonstrate your workings.

### Previous Q& A

#### Show how to describe given experiment

Show how to describe given experiment in terms of more fundamental outcomes so that the classical approach leads to a more reasonable probability assignment.

#### What additional biographical facts should you include

Now, say we switch our MOTS topic to the cost of a Penn State education. Aside from the students' full name, major and class standing, what additional biographical facts should you include for each interviewee?

#### Carazona cost of debt in indonesia

Clearly explain why the consultant's advice is not logical. That is, explain why Carazona's cost of equity in Indonesia would not be less than Carazona's cost of debt in Indonesia.

#### Which transactions would have to be entered again by users

For the following exercises, you will address problems and answer questions from the Solmaris Condominium Group staff. You do not use the Solmaris database for any of these exercises.

#### Why were baroque audiences interested by greek legends

Monteverdi's L'Orfeo and Purcell's Dido and Aeneas are both based on Greek myths. Why were Baroque audiences interested and entertained by Greek legends?

#### Government t-bills had the nominal rates

Assume that the inflation rate during the last year was 1.10 percent, US government T-bills had the nominal rates of return of 5.72 percent. What is the real rate of return for a T-bill?

#### Why would you take the actions you mentioned above

Will you approach these three men to question them? What would you say to them? What other actions might you engage in with regard to these men? Why would you take the actions you mentioned above?

#### What interventions may be appropriate for vinnie

Flow does Vinnie's case illustrate one or more of the theories we have discussed? What contributing factors may have influenced Vinnie's behavior? What interventions may be appropriate for Vinnie and his parents?

#### Conduct a small literature search on azt therapy for hiv

TOPIC: AZT therapy for HIV. To do this, you will critically evaluate articles on the adopting AZT Therapy for HIV. You will then be required to conduct a small literature search on the topic

#### Accounting treatment followed on initial recognition

What characteristics must the convertible bonds display in order to justify the accounting treatment followed on initial recognition?

### Similar Q& A

#### The firms noncallable bonds mature in 20 years have an 800

xyz inc. recently hired you as a consultant to estimate the companys wacc. you have obtained the following

#### Which should be actually selected

Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should be actually selected?

#### The purchasing department has found an excellent global

the purchasing department has found an excellent global positioning system circuit card in germany that can provide

#### Suppose you just bought a 20-year annuity of 7500 per year

suppose you just bought a 20-year annuity of 7500 per year at the current interest rate of 10 percent per year. what

#### What is the present value of your inheritance

You will receive a \$100,000 inheritance in 15 years. Your investments earn 6% per year, compounded annually. To the nearest hundred dollars, what is the present value of your inheritance?

#### Solve the problem below data-check is considering two

solve the problem below data-check is considering two capital structures. the key information is shown in the following

#### Identify two financial intermediaries

Identify two financial intermediaries. What are their respective functions? What are their major roles in the economy?

#### Training program explaining net present value

You have been asked by a manager in your organization to put together a training program explaining Net Present Value (NPV) and Future Value (FV) and how they are used to evaluate the price of stock. You have been given the following objectives:

#### By how much does bradford required return

By how much does Bradford's required return exceed Farley's required return? Round your answer to two decimal places.

#### What is the reorder point

Using the data from above, assume that Company Products operates 250 days per year and its total usage is 1,100 units per year. The lead time is 2 days and Company wants to maintain a safety stock of 4 units. What is the reorder point?

#### What is the maximum monthly mortgage payment

what is the maximum monthly mortgage payment for which he can qualify? Monthly Gross Income \$5,000 Car payment 800 Other installment debt 500.

#### Do you think that your selected ventures are overvalued

this week research valuation methods using the following questions to guide you.for the industry you selected research

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!