Answered step by step
Verified Expert Solution
Question
1 Approved Answer
4 i. Dominika Co. has 20,000 to invest for a five-year period. She could deposit it in a bank earning 8% per year compound interest.
4 i. Dominika Co. has 20,000 to invest for a five-year period. She could deposit it in a bank earning 8% per year compound interest. She has been offered an alternative: investment in a low-risk project that is expected to produce net cash inflows of 6,500 for each of the first three years, 7,500 in the fourth year, and 3,000 in the fifth year. a. Calculate the NPV Method and the Internal Rate of Return (8 marks) ii. Shabbir Co is reviewing investment proposals that have been submitted by divisional managers. The investment funds of the company are limited to $800,000 in the current year. Details of three possible investments, none of which can be delayed, are given below Project 1 An investment of $300,000 in workstation assessments. Each assessment would be on an individual employed basis and would lead to savings in labour costs from increased efficiency and from reduced absenteeism due to work-related illness. Savings in labour costs from these assessments in money terms are expected to be as follows: Project 2 An investment of $450,000 in individual workstations for staff is expected to reduce administration costs by $140,800 per year in monetary terms for the next 5 years. Required: Determine the best way for Shabbir Co to invest the available funds and calculate the resultant net present value, based on the assumption that each of the two projects is divisible (8 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started