Emalini Trading (Pty) Ltd has been setting aside funds every month for a few years now, with a view to using the saved-up amount for the introduction of a new business unit to expand their enterprise. Theyve reached their target of saving R1 million, and are now looking at three different projects that they could implement. They have come to you for advice on which one of the three to pursue. Each of the three would cost exactly R1 million to set up, and they have projected the following net cash flows stemming from each project:

	Project A	Project B	Project C
Year 1	R375,000	R100,000	R800,000
Year 2	R375,000	R200,000	R400,000
Year 3	R375,000	R400,000	R200,000
Year 4	R375,000	R800,000	R100,000

The directors of Emalini Trading have mentioned that, for them to go ahead with any new projects, their desired payback period is three years or less. Using the payback period as an accept/reject tool, which of the three projects should be accepted, and moved on to the next stage where they will be ranked in terms of preference? (Max. 5 lines)

3.2 Now, for each of the projects that were acceptable in terms of payback period, calculate the NPV and PI figures. The companys cost of capital is 15%. Calculate your answer by filling in the tables below:

Write the project title here:
Year	Net cash flow	PVIF	PV of net CF
1
2
3
4
		Total PV of cash flows
		Less initial investment
		NPV
Write the profitability index of this project here:

Write the project title here:
Year	Net cash flow	PVIF	PV of net CF
1
2
3
4
		Total PV of cash flows
		Less initial investment
		NPV
Write the profitability index of this project here:

3.3 Using your answers to 3.1 and 3.2, which of the three projects should be the first choice for implementation? Explain your reasoning in a maximum of three brief points. (Max. 4 lines)

Start writing here:

3.4 In a brief point or two, state whether are there any limitations to any of the capital budgeting methods used in this question. If so, how do they apply to the situation at hand? (Max. 3 lines)

Start writing here: