Question 3

You have gained a vast amount of financial knowledge whilst studying at Boston. Your auntie San is in need of financial assistance and has come to you for advice. Auntie San owns her own business. She has managed to save a lot of the income from her business. She informed you that she only gets 4% interest from the bank and would rather like to invest her business's money in a project. She found the following opportunities: Initial Investment Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 The cost of capital is 16%. Project Z R500 000 [12 marks] R300 000 R250 000 R100 000 3.2 Inform your aunt which project will be the most beneficial and why Present value interest factors Period Project ZZZ R800 000 3.1 Calculate the net present value of each project. Round your factor to two decimals before calculating the net present value for each year. (10 Marks) R300 000 R350 000 R300 000 (2 Marks) 1% 2% 3% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 10.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0243 0225 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0205 0.181 0.160 0.141 0.125 0.111 0.099 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0209 0.183 0.160 0.140 0.123 0.108 0.095 0.084

Question 3 [12 marks] You have gained a vast amount of financial knowledge whilst studying at Boston. Your auntie San is in need of financial assistance and has come to you for advice. Auntie San owns her own business. She has managed to save a lot of the income from her business. She informed you that she only gets 4% interest from the bank and would rather like to invest her business's money in a project. She found the following opportunities: The cost of capital is 16%. 3.1Calculate the net present value of each project. Round your factor to two decimals before calculating the net present value for each year. (10 Marks) 3.2 Inform your aunt which project will be the most beneficial and why (2 Marks) Present value interest factors