Case: Part 2 e-beats_Africa must choose between two of Logic designs design packages. The first design package (called Project X) includes a 5-year subscription plan (fist year = Year 0). Project X, is R10 000,00 in the first year of subscription, increasing every year with R200,00. Based on an estimate number of subscribers joining e-beats_Africa every year, you estimate that the new platform will generate income estimated as follows: R20 000,00 in Year 1; R23 000,00 in Year 2; R28 000,00 in Year 3; R34 000,00 in Year 4. The second subscription (Project Y) is more premier and provide additional capabilities that the first subscription does not have, hence, it is more expensive. Its subscription fee is R30 000,00 increasing with R1000,00 annually. Based on an estimate number of subscribers joining e-beats_Africa every year, you estimate that the new platform will generate income estimated as follows: R40 000,00 in Year 1; R48 000,00 in Year 2; R60 000,00 in Year 3; R66 000,00 in Year 4.

Question 2 [50]

2.1. Calculation of the Net Profit for Project X and Project Y.

2.1.1. Calculate the total expenses of each project. Show the formula used. (4)

2.1.2. Calculate the total income of each project. Show the formula used. (4)

2.1.3. Calculate net profit of each project. Show the formula used. (4)

2.2. Net Present Value (NPV) is one of the factors that you will take into consideration when deciding whether to choose Project X or Project Y.

Note to examination candidate: In response to the sub questions below, only writing down the amount/value will suffice, you are not required to display the formula

2.2.1. Assuming a discount rate of 10%, calculate the discount factor for each year. (4)

2.2.2. Calculate the total discounted cost amount of each project. (6)

2.2.3. Calculate the total discounted benefits amount. (6)

2.2.4. Calculate the NPV value for each project. (8)

2.2.5. Based on the NPVs calculated in question 2.2.4, which project do you recommend for e-beats_Africa? Justify your answer

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