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:
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
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 |
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
