QUESTION 3 (17 marks) Knives & Forks Ltd ("K&F") is a South African restaurant chain group with restaurants throughout the country. An opportunity arose for K&F to open up either a restaurant in the Eastern Cape or the Free State. K&F however only have enough finance sources available to open one of the two options and accordingly, they are mutually exclusive. Both options have an initial investment (cost) of R7 million. K&F has performed research in regard to the possible cash flows to be generated from both restaurants based on different success rates. Below is the research findings: Eastern Cape Free State Success Probability Cash flow Success Probability Cash flow Poor 15% R1 million Poor 15% R900 000 Average 50% R14 million Average 45% R12 million Exceptional 35% R22 million Exceptional 40% R18 million The standard deviation for the Eastern Cape is R3.3 million and R2.1 million for the Free State. K&F applies a discount rate of 9.1% to investment options with a co-efficient of variation 0.2 and below. Thereafter, 2% is added to the discount rate for every 0.1 incremental part. 70 HEMN331-1-Jul-Dec2021-FA1-V3-ES-25052021 ANNEXURE F: FORMATIVE ASSESSMENT 1 Required: 3.1 Calculate the expected value of each investment option (i.e., Eastern Cape and Free State) (6 marks) 3.2. Calculate the co-efficient of variation (CV) for each investment option. (4 marks) 3.3. Calculate the NPV of each project assuming K&F applies a risk-adjusted discount rate. Assume both restaurants have an estimate lifespan of 20 years. (7 marks) Round to two decimals where required