Two investment projects are being considered

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Reference no: EM131603346

Two investment projects are being considered. The two projects each involve an initial investment of £3 million. The incoming cash flows from the two projects are as follows:

• Project A: In the first year, Project A generates cash flows of £0.5 million. In the second year it will generate cash flows of £0.55 million. The cash flows generated by the project will continue to increase by 10% per annum until the end of the sixth year and will then cease. Assume that all cash flows are received in the middle of the year.

• Project B: Project B generates cash flows of £0.64 million per annum for six years. Assume that all cash flows are received continuously throughout the year. Calculate the ratio of the duration of the incoming cash flows from Projects A to the duration of the incoming cash flows from B at a rate of interest of 4% per annum effective.

Reference no: EM131603346

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