Working out Calculations and Bullet Points on Reporting

A company is seeking to expand its operations with the establishment of an office block to house the marketing and human resources staff.The company has narrowed the choice to two alternatives with the following net cash flow information being available:

Year Property 1 Property 2

£000s £000s

0 (2,500) (2,750)

1 1,000 900

2 500 700

3 600 800

4 1,000 600

5 900 700

• The company’s current cost of capital is 10%.

• Ignore taxation.

Calculate net present value, internal rate of return and payback, to advise the company which option they should take.

You should also critically evaluate the other qualitative factors that might be taken into account in this decision.