Universal PLC is considering two mutually exclusive project proposals for new investment. The initial outlay of...

Universal PLC is considering two mutually exclusive project proposals for new investment. The initial outlay of both projects is £300,000 but will yield different levels of cash flows over the life of the project. The projects are estimated to last for five years. They will have no residual value at the end of their lives. Depreciation is charged on a straight-line basis. The company uses a 6% discount rate for the cost of capital. The cash flows of both projects are as follows:

Year	Project A Cash flows	Project B Cash flows
1	80000	100000
2	80000	100000
3	80000	90000
4	100000	80000
5	100000	40000

Required:

Appraise each project using:

The payback method [10 Marks]

The Net present value method [8 Marks]

Based on your results from (a), explain which project the company should choose.

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Expert Solution

jeff jeffy answered 1 year ago

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