PGBM01 - MBA Financial Management And Control (2015-16 Trm1 A)Pgbm01 workshop 9 further question
1. PGBM01 Financial Management & Control Workshop 9 Further Question
Question 1
Tarragon needs to choose between two mutually exclusive investment projects,
each lasting for five years. The company uses straight-line method of
depreciation and its cost of capital is 15 per cent.
Project Alpha would generate annual cash inflows of £200,000 after the purchase
of machinery costing £556,000, with a scrap value after five years of £56,000.
Project Beta would generate annual cash inflows of £500,000 after the purchase
of machinery costing £1,616,000, with a scrap value after five years of £301,000.
Required:
Calculate, for each project, the return on capital employed (ROCE), net present
value, and payback period. Advise which project should be undertaken based upon
the results calculated.
