Reference no: EM13340685

The accountant at Dynasty Limited Mr David Edwards has been arrested suddenly and is not expected to return for some time.

The Managing Director has approached Diversity Management Consultants for guidance in reviewing two capital projects the company are considering with the aim of delivering increased profits for distribution to shareholders.

He has a limited knowledge on capital investment appraisal but does understand that there are a number of techniques that can be used to assist in the decision making process.

He is expecting Diversity Management Consultants to apply as many techniques as is practical and to make a clear recommendation.

To assist his understanding he has also requested that the strengths and weaknesses of the various techniques are fully evaluated together with your view as to the usefulness of capital investment appraisal.

He has provided Diverse Management Consultants with the following information.

The initial investment will be £120,000 and it is expected the cost of capital is 12%.

There will be a residual scrap value of £ 20,000 at the end of the project period.

The net after tax cash flows of the projects are as follows to be received at the end of each year :

                                            Project A      Project B        

                                             £                 £                         

Year 1                                  30,000         30,000                         

Year 2                                  30,000         30,000                   

Year 3                                  60,000         40,000                  

Year 4                                  45,000         40,000                            

Year 5                                                      35,000