There are a senior manager at Zambia Airways and have been authorized to spend up to...

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Finance

There are a senior manager at Zambia Airways and have beenauthorized to spend up to K400,000 FOR THE PROJECTS. The threeprojects you are considering have the fillowing characterics;
Project Details
Project A Intial investment of K280,000 .Cash flow of K190,000 at year 1and K 170,000 at yr 2. This is a plant expansion project
Project B Intial investment of K390,000. Cash flow of K270,000 at year 1and K 240,000 at year 2. this is a new product developmentproject
Project C Intial investment of K230,000. Cash flow of K160,000 at year 1and K190,000 at year 2. this is a market expansion project
Assume the corporate discount rate is 10%, please offer yourrecommedations by ranking the projects, backed by your analysisusing:
a) Net Present Value
b) Profitabilty Index
c) payback period
d) Chritique the flaws of each technique

Answer & Explanation Solved by verified expert

3.7 Ratings (596 Votes)

Rank a NPV of Project A 28000019000011170000112 33223 3 NPV of Project B 39000027000011240000112 53802 2 NPV of Project C 23000016000011190000112 72479 1 Ranking is done in the descending order of NPV with Project C having the 1st rank b PI of Project A 19000011170000112280000 112 3 PI of See Answer

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Project	Details
Project A	Intial investment of K280,000 .Cash flow of K190,000 at year 1and K 170,000 at yr 2. This is a plant expansion project
Project B	Intial investment of K390,000. Cash flow of K270,000 at year 1and K 240,000 at year 2. this is a new product developmentproject
Project C	Intial investment of K230,000. Cash flow of K160,000 at year 1and K190,000 at year 2. this is a market expansion project