(a)[2]
Explain what the term ‘net cash inflow’ means.
(b(i))[8]
Calculate the scrap value of the machinery at the end of year 4 that would make Option 2’s NPV equal to zero.
(b(ii))[4]
Calculate the scrap value of the machinery at the end of year 4 that would make Option 2’s NPV equal the NPV of Option 1.
(c)[2]
Explain why the payback period is shorter for Option 1 than for Option 2 when the net cash flows are the same.
(d)[2]
Explain why a shorter payback period is better than a longer one.
(e)[2]
Explain why a project with a zero NPV is not the same as one with zero total profit.
(f)[5]
Advise Kurt which option he should implement. Justify your answer.