Question Calculate only internal rate of return Question Using the case study, Manchestera ltd, and your reading and research, advise management which project will be feasible on the financial grounds. Provide critical evaluation of the investment appraisal methods considered as part of your discussion. Manchestera ltd Manchestera ltd is considering the selection of one of a pair of mutually exclusive capital investement projects. Both would involve the purchase of machinery with a life of five years. Manchestera uses the straight-line method for calculating depreciation and its cost of capital is 15% per year. Project 1 would generate annual net cash inflows of £400,000; the machinery would cost £1,112,000 and have scrap value of £112.000. Project 2 would generate annual net cash inflows of £1,000,000; the machinery would cost £3,232,000 and have scrap value of £602,000.
Question
Calculate only
Question
Using the case study, Manchestera ltd, and your reading and research, advise management which project will be feasible on the financial grounds. Provide critical evaluation of the investment appraisal methods considered as part of your discussion.
Manchestera ltd
Manchestera ltd is considering the selection of one of a pair of mutually exclusive capital investement projects. Both would involve the purchase of machinery with a life of five years. Manchestera uses the straight-line method for calculating depreciation and its cost of capital is 15% per year.
Project 1 would generate annual net
Project 2 would generate annual net cash inflows of £1,000,000; the machinery would cost £3,232,000 and have scrap value of £602,000.
In-class activity:
For each project, calculate
- Accounting rate of return (using the initial investment)
- The payback period
Net present value - Internal rate of return
Question
Using the case study, Manchestera ltd, and your reading and research, advise management which project will be feasible on the financial grounds. Provide critical evaluation of the investment appraisal methods considered as part of your discussion.
Step by step
Solved in 2 steps with 4 images
