QUESTION 2 [20 MARKS] Mr Simpson is the finance director of Goldy Locks Ltd and is considering a list of four proposed projects from the various divisions of the company. The four projects are divisible and have a lifetime of four years. The initial investment and estimated net cash flows of each project are as follows: Project A Project B Project C Project D Initial Investment (Rs) 300,000 400,000 250,000 300,000 Year Net Cash Flows(Rs) 170,000 90,000 100,000 150,000 2 190,000 140,000 100,000 150,000 200,000 200.000 100,000 150,000 80,000 250,000 50,000 150,000 1 3 4 The company uses a cost of capital of 10% to appraise new projects. Required (a) Calculate the Net Present Value (NPV) for each project. [8 marks] (b) The current level of funds available for investment in projects are Rs1 200 000. Calculate the profitability index for each project and identify the projects to which the finance director must allocate funds in order to maximize shareholders' wealth while showing the ranking of the project. [4 marks] (c) Differentiate between mutually exclusive projects and independent projects. [4 marks] (d) While going through the data, Mr Simpson realizes that cash flow estimation of project C should have been Rs100,000 in year 4 as well as in years 5 and 6. Comparing with Project D, which one will be more profitable assuming both projects are mutually exclusive? [4 marks]