Financial management

Question 4 (20) You are an employee of a company called Choices (Pty) Ltd and since the financial manager knows that you have just passed the financial management module for your qualification, he approached you to help him with the financing decision regarding two projects. He shared the following information for the two projects with you: Cash inflows: Project A Project B Year 1 600 000 500 000 Year 2 650 000 520 000 Year 3 680 000 560 000 Year 4 700 000 590 000 Year 5 710 000 640 000 Total cash inflows 3 340 000 2 810 000 The initial cost for both projects is R1 000 000. The internal rate of retum (IRR) is 25% for project A and 7% for project B. The financial manager is of the opinion that the company should invest in project A, as this project generates more cash inflows for the same initial cost. Required: Round off your answers to the nearest rand. 4.1. Calculate the net present value for each project. (16) 4.2. Advise the financial manager whether project A is the better project based on your calculations. (4)