Capital Investment Appraisal:
The following information relates to Ross Hill limited. The company has an opportunity to invest in one
of two potential & mutually exclusive (but not both) projects. Each project will involve the purchase of a
new Plant. The following data relates to the two projects:
Net Profit Project A Project B
Plant 1 Plant 2
2020 45,000 10,000
2021 45,000 15,000
2022 45,000 25,000
2023 35,000 55,000
2024 35,000 65,000
2025 25,000 50,000
230,000 220,000
Additional Information:
• The initial cash investment for both plants will be £11,0000. The purchase would
take place on January 1, 2020. It is assumed that all other cash flows would be
received on 31 December each year.
• Both plants would have a life of six years. Plant 1 has no residual value and plant 2
has a residual value of £8,000.
• The company uses a straight-line method of depreciation.
• The cost of capital is 16%.
Required:
a) Using appropriate investment appraisal techniques, advise senior management on whether
they should opt for project A or project B. (20 Marks)
b) Discuss the limitations of using investment appraisal techniques in long term decision making.
(10 Marks)
(Total: 30 marks)
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more