Reference no: EM132755491

Question - M Limited is evaluating three possible investment projects and uses a 10% discount rate to determine their net present values.

	A (N,000)	B (N,000)	C (N,000)
Initial investment	400	450	350
Incremental cash flows:
Year 1	100	130	50
Year 2	120	130	110
Year 3	140	130	130
Year 4	120	130	150
Year 5	100	130	100
Net Present value	39	43	48

REOUIRED -

1. Calculate the payback period of investment A.

2. Discuss the advantages and disadvantages of payback as a method of investment appraisal.

3. Calculate the discounted payback period of investment B.

4. Calculate the internal rate of return (IRR) of investment C.

5. Evaluate the sensitivity of project B's net present value to the change in the following project variables, assuming that the above figures are based on 2000 units at the selling price of N$100 per unit and variable costs at N$35 per unit,

i. Initial investment

ii. Sales volume

iii. Sales price

iv. Variable costs