Cases Case 1 - Case Study - School for Advanced Studies A private school is considering investing in its own transport fleet (School buses). The transport fleet's initial cost would be AED 2,200 000 and requires AED 350,000 investment in working capital. The life of the transport fleet would be 8 years, after which time the vehicles would have to be scrapped with no salvage value at the end of 8 years using the Straight Line method. The management has come up with the following Revenues and cost data (net cash flow) for the next 8 years. Sales to its customers will amount to AED 225,000 for the next four years and increase to AED 550,000 for the last four years. To raise funds for the project, your company is proposing to raise a long- term loan at 10% interest rate per annum. You are told that there is an alternative project that could be invested in using the funds which have the following projected results: Payback period = 6 years Net present value = AED 270,000 As funds are limited, investment can only be made in one project. Decide which project you will choose and why? Case 2 - Case Study - CIB Company A private company is considering investing in new IT machinery. The initial cost would be AED 4,500 000 and also require AED 310,000 investment in working capital. The life would be 8 years, after which time the IT Machinery would have to be scrapped with no salvage value at the end of 8 years using the Straight Line method. The management has come up with the following Revenues and Cost (net cash flow) data for the next 8 years. Sales to its customers will amount to AED 540,000 for the next four years and then increase to AED 700,000 for the last four years. To raise funds for the project, your company is proposing to raise a long-term loan at a 13% interest rate per annum. You are told that there is an alternative project that could be invested in using the funds which have the following projected results: Payback period = 7 years Net present value = AED 225,000 As funds are limited, the investment can only be made in one project. Decide which project you will choose and why