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Deep Gold Mining Limited (DGML) has identified two projects, project A in the Khomas Region, 35 kilometres from Windhoek and project B in the Hardap
Deep Gold Mining Limited (DGML) has identified two projects, project A in the Khomas Region, 35 kilometres from Windhoek and project B in the Hardap Region, approximately 65 kilometres from Windhoek. Both these projects will provide the company with much-needed income to diversify its current dependency on mining. The Senior Accountant, operating from Cape Town, solicited your services to prepare a report on the viability of the projects for the Finance Manager. You received the technical teams' estimates, and the probable cash flows from the projects with an estimated duration of 4 years. The Chief Executive Officer, Mr Mall, is a geologist by training and has indicated that he has a preference for the payback method because of its simplicity, and he prefers to invest in projects that repay the original investments in three years. DGML requires a 15% return on their investment. Required: 3.1 Evaluate the two projects using the payback method. 3.2 Based on your calculations in 3.1, indicate which of the projects are acceptable and why
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