Answers must be typed in and all workings must be shown.

QUESTION FOUR Bob Ltd has a choice of two projects to invest in. The following details relate to these projects: Project Y R1700 000 Project 2 R1600 000 Investment required 6 years Expected economic lifetime Minimum required rate of 6 years 12% 12% return Net annual cash inflows R400 000 R430 000 1st year 2nd year R420 000 R430 000 R440 000 R430 000 3rd year 4th year R580 000 R430 000 R520 000 R430 000 5th year 6th year R460 000 R430 000 Required 4.1 Use the net present value method to determine which project Baker Ltd should choose. Show all workings 4.2 Justify why the net present value method (NPV) is favoured over the payback period. Present value interest factor of R1 per period for n periods, PVIF (i,n) Period 12% 1 0.893 2 0.797 3 0.712 4 0.636 5 0.567 6 0.507 Present value interest factor of an annuity of R1 per period for n periods, PVIFA (in) Period 12% 1 0.893 2 1.690 3 2.402 4 3.037 5 3.505 6 4.111