Hi there, Please answer question 3.3 as you have not done so.

Question Q3 Read the scenario below and answer the questions that follow: A company is considering investing in a project, Project X, which has the following details: Initial investment: R1 million. Scrap value at the end of the project: 25% of initial investment. Target payback period: four years. Cash flows from project: Year 1 2 3 4 5 Annual cash flows (R'000) 100 150 350 500 300 The cost of capital on Project X is 10%. You are given the following discount factors at 10%: Year Discount factor @ 10% 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 Note: round of all answers to the nearest thousand. 3.1 Using the table provided below, calculate the net present value (NPV) of the project and indicate whether the project should be accepted or rejected: Year Discount factor @ 12% Net cash flow (R'000) Present value 3.2 Using the table provided below, calculate the payback period of the project: Year Cash flow Cumulative cash flow 3.3 Assuming an IRR of 12%, what would your investment decision be, based solely on IRR? Substantiate your answer. 3.4 Based on the NPV and payback period, should Project X be accepted? Substantiate your answer. Expert Answer Anonymous answered this 1,060 answers Answer: Initial investment - R1 million OR R1,000,000 Scrap value at the end of the project: 25% of the initial investment - R1,000,000 Target payback period- Four years Following is the calculation of the net present value: Particulars Amount ($) Amount ($) Amount ($) Initial investment 1,000,000 Chart values are based on: Year Cash inflow PV Factor 10% Present value 1 100,000 0.909 90,900 2 150,000 0.826 123,900 3 350,000 0.751 262,850 4 500,000 0.683 341,500 5 300,000 0.621 186,300 Total PV of cash inflows 1,005,450 Present value of cash inflows 1,005,450 Less: Initial investment 1,000,000 Net present value 5,450 NPV is positive, so we would say that yes the project should be accepted. The calculation of the payback period: Payback Period = Initial investment / Cash flow per year Payback period = 1,000,000 / 1,400,000 = 0.71 Particulars Amount ($) Amount ($) Initial investment 1,000,000 Chart values are based on: Year Cash inflow Cumulative cash inflow 1 100,000 100,000 2 150,000 250,000 3 350,000 600,000 4 500,000 1,100,000 5 300,000 1,400,000

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