To explore capital investment options and to make appropriate financial

| July 14, 2018

Question:ASSIGNMENT OBJECTIVES:To explore capital investment options and to make appropriate financial and economicdecisions. This assignment would assist in developing project skills in projectassessment and evaluation, to be analytical and to engage in critical thinking andproblem solving in evaluating alternative courses of action in a real-world scenario.ASSIGNMENT QUESTION :QUESTION 1Blackwell Ltd., a steel manufacturer is considering the selection of one from two mutuallyexclusive investment projects, each with an estimated five-year life. Project A costs$1,616,000 and is predicted to generate annual cash flow of $500,000. Its estimatedresidual value after five years is $301,000. Project B, costing $556,000 and with a scrapvalue of $56,000, should generate annual cash flow of $200,000. The company operatesa straight-line depreciation policy and discounts cash flows at 15 per cent per annum.The project manager at Blackwell Ltd., uses four different investment appraisaltechniques : net present value, internal rate of return, payback period, and theaccounting rate of return.TASK :a. Make the appropriate calculations for each of the four techniques and providereasons for your investment advice.b. List and discuss the strengths and drawbacks of each of the four investmentappraisal techniques.[50 marks]

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