OBJECTIVES: To explore capital investment options and to make appropriate financial and
economic decisions. This assignment would assist in developing project skills in project
assessment and evaluation, to be analytical and to engage in critical thinking and problem
solving in evaluating alternative courses of action in a real-world scenario.
ASSIGNMENT QUESTION:
Blackwell Ltd., a steel manufacturer is considering the selection of one from two mutually
exclusive investment projects, each with an estimated five-year life.
Project A costs $1,616,000 and is predicted to generate annual cash flow of $500,000.
Project B, costing $556,000 should generate annual cash flow of $200,000. The company
discounts cash flows at 15 per cent per annum.
The project manager at Blackwell Ltd. uses three different investment appraisal techniques: Net
Present Value, Internal Rate of Return and Payback Period.
TASK:
a. Make the appropriate calculations for each of the three investment appraisal techniques
and ,
b. Provide reasons for your investment advice.