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Question 1 ( 25 marks; 45 minutes) Andrews Construction is analysing its capital expenditure proposals for the purch ow equipment in the coming year. The
Question 1 ( 25 marks; 45 minutes) Andrews Construction is analysing its capital expenditure proposals for the purch ow equipment in the coming year. The capital budget is limited to R6 000000 for the year. Bart, staff analyst at Andrews, is preparing an analysis of the three projects unce, consideration by Corey Andrews, the company's owner. Because the company's cash is limited, Andrews thinks the payback period method should be used to choose between the capital budgeting projects. Bart thinks that projects should be selected based on their NPVs. The required rate of return is 10%. Assume all cash flows occur at the end of the year except the initial investment amounts. Required: 1.1 Calculate the payback period for each of the three projects. 1.2. With a total capital budget of R6 million, which project(s) should Andrews choose? 1.3 Calculate the NPV for each project. 1.4 With a total capital budget of R6 million, which projects, if any, would you recommend for funding? Briefly explain why
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