Question 1

The Saldanha Bay Municipality in partnership with the Military Academy has opened a business centre. As part of this initiative, the students from the Military Academy are utilised in helping businesses with decision-making. You are requested to work out the following independent scenarios and give feedback to the business owners.

The following information applies to questions 1.1 to 1.3:

Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.

a. Colby Hepworth has just invested R4 000 000 in a book and video store. She expects to receive a cash income of R1 200 000 per year from the investment.

b. Kylie Sorensen has just invested R14 000 000 in a new biomedical technology. She expects to receive the following cash flows over the next 5 years: R3 500 000; R4 900 000; R7 000 000; R4 200 000 and R2 800 000.

c. Carsen Nabors invested in a project that has a payback period of 4 years. The project brings in R9 600 000 per year.

d. Rahn Booth invested R13 000 000 in a project that pays him an even amount per year for 5 years. The payback period is 2 years.

1.1 Calculate the payback period for both Colby and Kylie. (3)

1.2 How much did Carsen invest in the project? (1)

1.3 How much cash does Rahn receive each year? (1)