The following information relates to three potential investment projects that are being considered by Scrappit plc. Due to capital rationing, only one of the three projects can be pursued. Initial cost Expected life Scrap value expected Expected cash inflows: End of year 1 2 3 4 5 Additional information: Project A £ 175,000 5 years 5,000 75,000 65,000 60,000 55,000 50,000 Project B £ 195,000 5 years 8,000 95,000 65,000 45,000 45,000 45,000 i. Scrappit plc estimates its cost of capital to be 18%. ii. £35,000 depreciation is charged to Project A each year. iii. £39,000 depreciation is charged to Project B each year. iv. £38,000 depreciation is charged to Project C each year. Project C £ 190,000 5 years 4,000 50,000 60,000 65,000 66,000 57,000

Write the formula to evaluate the investment worth of projects?

Prepare a detailed analytical report that encompasses the following areas. Nature of investment markets, the Primary and secondary investment markets. Also brief discussion on the money market and capital market providing key differences between the two. Five stages of the investment management process providing key points that will ensure the success of the investment decision.

1. State the criterion for accepting or rejecting independent projects under each of the following methods. - Profitability index  - Discounted payback period  - Accounting rate of return  - Net present value  - Payback period  - Internal rate of return

Which of the following statements is true? O The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project. O The internal rate of return method assumes that the cash flows generated by a project are reinvested at a rate of return that equals the company's cost of capital. O The profitability index and the internal rate of return will always result in the same preference ranking for investment projects. O In calculating the profitability index, the initial investment in the project should be reduced by any proceeds from the sale of old equipment. O None of the above statements is true.

Define “the stand-alone principle” applying in evaluating projects and discuss the types of cashflows in project evolution.

Net Present Value Method Net present value (NPV) is one method that can be used to evaluate the financial viability of potential projects. It determines the present value of all future cash flows associated with potential projects and measures this against the cost of the project. To use net present value, a required rate of return must be defined. The required rate of return is the minimum -v acceptable rate of return that an investment must yield for it to make sense economically. Managers often choose a required rate of return above their cost of capital to ensure that the inherent uncertainties surrounding future cash flows is addressed. This can be risky, however, as it biases the process toward short-term projects. If the NPV is positive, then the project should be accepted - V ; if it is negative, then the project should be rejected V. Let's look at a net present value example using the present value of an ordinary annuity table. The company has a project with a 5-year life that…

There are four main methods of investment appraisal: Accounting Rate of Return, Payback, Net Present Value and Internal Rate of Return. Critically evaluate each method and briefly discuss their advantages and disadvantages

We learn there are three primary methods used to analyze capital investment proposals.   Please compare and contrast these three methods.   Be sure to include strengths (benefits) and weaknesses (drawbacks) of each.   Three primary methods are: Payback method Internal rate of return Net present value.

Explain the uses, limitations and merits of the Payback Period compared to Net Present Value in investment appraisal.