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3 6 + You have been hired as an intern to Investment Department of large corporation Your supervisor Mrs. Semenova gives you a task to assess the following project: Initial investment at t-0 (i.e. beginning of year 1) - S1 300 000 Projected semi-annual cash inflows: Period 0 3 4 Cash inflows 50.000 50.000 100.000 100.000 Effective annual cost of capital is 10%. 5 6 7 300.000 300.000 400.000 40 a) Determine the equivalent discount rate (cost of capital per half a year (5 points) b) Using rate you determined in part a), caleulate NPV of the project and state whether project should be accepted (5 points) c) Calculate project's payback period (in years) (2 points d) Based on payback rule only, should the company accept this project if the maximum payback it requires is 4 years? Discuss drawbacks of payback method in project evaluation compared to NPV method (5 points) e) State whether IRR of this project is greater or smaller than required cost of capital. Clearl explain your answer (Note: this is question for understanding, no calculations are required hen only explanation) (5 points) AB 3 6 + You have been hired as an intern to Investment Department of large corporation Your supervisor Mrs. Semenova gives you a task to assess the following project: Initial investment at t-0 (i.e. beginning of year 1) - S1 300 000 Projected semi-annual cash inflows: Period 0 3 4 Cash inflows 50.000 50.000 100.000 100.000 Effective annual cost of capital is 10%. 5 6 7 300.000 300.000 400.000 40 a) Determine the equivalent discount rate (cost of capital per half a year (5 points) b) Using rate you determined in part a), caleulate NPV of the project and state whether project should be accepted (5 points) c) Calculate project's payback period (in years) (2 points d) Based on payback rule only, should the company accept this project if the maximum payback it requires is 4 years? Discuss drawbacks of payback method in project evaluation compared to NPV method (5 points) e) State whether IRR of this project is greater or smaller than required cost of capital. Clearl explain your answer (Note: this is question for understanding, no calculations are required hen only explanation) (5 points) AB

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