Luca Group. is considering investing in one of two possible projects (A & B) that will involve the development of a new production line: Corporate Finance Assignment, ICD, Ireland

Question 1

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:
  1. The Payback period
  2. 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