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A company is assessing which of two projects, Project A and Project B, to invest...

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Accounting

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A company is assessing which of two projects, Project A and Project B, to invest in. Project A requires capital of 5m at the outset. It will generate its first profit a year later and is expected to produce profits at the end of each year as shown below Project B requires capital of 10m at the outset. The project is expected to make a loss at the end of its first year and then make profits at the end of each year as shown below For Project B, the company believes there is a 30 per cent chance of the profits from the second year onwards being 20 per cent less than expected. End of Yeal Expected Profit (Loss) at End of Each Project A Project B Em Em 25 3.5 aCompare the two projects over the first four years of their lives using the discounted value method at 6 per cent per annum and the payback period method. bDiscuss what the company may consider and any other actions it could take before deciding which project to implement, havi ing regard to the results produced in

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