Luca Group. is considering investing in one of two possible projects (A & B) that will involve the development of a new production line.

The initial investment will be €11,500,000.

The company has a cost of capital of 10%. The Cash flows are as follows:

Calculate for each project:

The Payback period
Net Present Value (NPV)

Following the calculation of the above investment techniques identify which project should be undertaken by Luca Group. and outline the reasoning behind your choice
Explain one advantage and one disadvantage of the Payback period method and the IRR method of investment appraisal.

Question 2

Briefly describe four different stakeholders in a Corporate Organisation, and explain how their objectives may vary
Provide an explanation of Debt Factoring as a source of finance for the firm
Explain how the Acid test liquidity ratio can be used by managers to control the business

Present Value Table

Present value of 1 i.e. (l + r)– n

where r = discount rate

n = number of periods until payment

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