Question $1$

You have recently been appointed as the Financial Manager's Assistant of Prime Ltd$,$

and you were provided with the following information for project Lime.

The initial investment amounts to R$288519,$ and the cost of capital $($required rate of

return$)$ of $15\%.$ NOTE: YOU MAY USE THE INTEREST TABLES IN APPENDIX A

OF THE PRESCRIBED TEXTBOOK FROM PAGES $493-496$

Required:

a$)$ Calculate the net present value $($NPV$)$ and the profitability index $($PI$)$ of the

project Lime.

b$)$ Evaluate the project using the NPV and PI and recommend whether to accept

or reject the project. Also, indicate the effect of the project on the shareholders.