Question
The managers of MSAF Plc are considering the following projects (all values in £s)
Given the riskiness of these projects, investors require a 15% return on projects 1 and 2 and a 20% return on projects 3 and 4.
a) Calculate the payback period for each project and state what decision MSAF Plc will reach if they use a three-year payback period.
b) Calculate the IRRs for projects 1 and 4. What is the appropriate accept/reject decision for these two projects?
c) Calculate the NPV of each project. Which projects should MSAF Plc accept?
d) Discuss the implications of your answers in parts (a) and (c)
e) Discuss the implications of your results in parts (b) and (c) if projects 1 and 4 are mutually exclusive.