Project appraisal: แบบฝึกหัด

A company is considering two mutually exclusive projects, A and B. Project A has an NPV of \(\$15,000\) and an IRR of 18%. Project B has an NPV of \(\$20,000\) and an IRR of 15%. Both projects have the same initial investment and risk profile. The company's cost of capital is 12%. Which project should be accepted and why?

Define the term Net Present Value (NPV) and state the decision rule for accepting a single independent project based on its NPV.

Explain the difference between the payback period and Net Present Value (NPV) in terms of their treatment of the time value of money.

Identify and briefly explain two qualitative factors that a board of directors should consider, in addition to numerical project appraisal results, before approving a major factory expansion.

Zeta Ltd is evaluating a project requiring an initial investment of \(\$100,000\). The expected annual net cash inflows for the next four years are \(\$30,000\), \(\$40,000\), \(\$40,000\), and \(\$20,000\) respectively. The company uses the straight-line method for depreciation and assumes no residual value.

Required:
a) Calculate the Payback Period for the project.
b) Calculate the Accounting Rate of Return (ARR) based on the average investment.

Delta Corp is considering a capital investment of \(\$200,000\) in new machinery. The estimated net cash flows are as follows:
Year 1: \(\$80,000\)
Year 2: \(\$90,000\)
Year 3: \(\$70,000\)
Year 4: \(\$40,000\)

The company's cost of capital is \(12\%\). (Discount factors at \(12\%\): Yr 1: 0.893; Yr 2: 0.797; Yr 3: 0.712; Yr 4: 0.636)

Required:
a) Calculate the Net Present Value (NPV) of the investment.
b) Calculate the Profitability Index of the project.
c) State whether the project should be accepted based on your NPV calculation.