Reference no: EM132664385
Layton LTD's other business activity involves the selling of real estate, primarily the sale of properties that they develop themselves. Layton LTD was very cautions over the years and has managed to save up €150,000. Layton LTD has shown interest in two very different projects they would like to undertake, however give the scarcity of resources only one can be chosen. The first project is for Layton LTD to grow internally by expanding its operations to other areas of Malta. The second project available for Layton LTD is to invest in their current premises and update their technology and buildings. The following data for the two different investment opportunities are given hereunder.
Data Project A Project B
Initial Investment outlay (€) 150,000 90,000
Economic Life (years) 7 4
Liquidation value (€) 15,000 5,000
Net cash flows (€)
t1 38,000 32,000
t2 40,000 36,000
t3 45,000 38,000
t4 42,000 38,000
t5 40,000
t6 45,000
t7 50,000
Relevant discount rate (%) 8% 8%
Problem a. Finding the investment appraisal for Project A and Project B for Layton LTD utilising the Net Present Value (NPV) technique and the Internal Rate of Return (IRR) technique.
Problem b. Evaluate the results of the Net Present Value and the Internal Rate of Return appraisal techniques for both Project A and Project B
Problem c. Summarize, based on your workings, which project you would recommend Layton LTD to carry out.
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