Tuesday 12 November 2019

ABC Holdings is considering two projects. The projects are similar in nature and are expected to both

QUESTION 1 [41 MARKS]
ABC Holdings is considering two projects. The projects are similar in nature and are expected to both operate for four years. Due to unavailability of funds to undertake both of them, only one project can be accepted. The cost of capital is 12%.
The following information is available:


Net cash flows

Project A Project B

N$000 N$000
Initial Investment 46000 46000
Year 1 17000 15000
Year 2 14000 13000
Year 3 24000 15000
Year 4 9000 25000
Estimated scrap value at the end of year 4 4000 4000
Depreciation is charged on the straight line basis.
1. Assuming that the management of ABC holdings have decided to undertake both projects and the projects can be undertaken in part, how much NPV will they get if they have N$80 000 000 available to invest.
2. Explain three non-financial considerations that should be taken into account before a project is chosen

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