Calculate NPV and advise about investment decision

A small scale mining firm, Gold dust Ltd, wants to take a closer look at their financial position. They want to invest in a project to improve their operations. Their alternatives are "project innovation"; which has the potential to increase the yield of each shaft that they operate and "project improvement"; which is estimated to result in significant productivity and efficiency gains of their current operations. The current cost of capital as well as the interest rate is 15%.

Using the information in the tables below, calculate the following;

1. The payback period for both the innovation and improvement projects.
2. The net present value of both the innovation and improvement projects.
3. Advise Gold dust Ltd which project they should invest in based on the results of the abovementioned calculations and the nature of the projects.

Outline of Gold dust Ltd.'s costs Gold dust Ltd. has the following variable (or direct) costs: Electricity R20 per gram/per unit Inputs R150 per unit Labour R130 per unit Their fixed (or indirect costs) include: R'000 Rent R9 000 per month Security R950 per month Maintenance R2 000 per month Discounting Factors: Period: Discount Rate: Discount Rate: 10% 15% 0.9091 0.8696 0.8264 0.7561 0.7513 0.6575 0.683 0.5718 5 0.6209 0.4972 Project Project Year Innovation Improvement R'000 000 R'000 000 (i) Initial investment R 58 000 R 49 000 (ii) Annual net cash inflows: R 10 000 R 25 000 2 R 12 000 R 18 000 3 R 16 000 R 12 000 R 20 000 R 9 000 5 R 43 000 R 8 500