Question 4 10 points Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economic life of the project A will be 6-Year's and Project B will be 5 years, and both projects carry same risk. Batelco Inc uses a discount rate of 12%. After considering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. A financial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table: Projects A Projects B 470,000 240,000 Cost of equipment Working Capital needed Overhaul of the equipment in 60,000 80,000 12000 14000 two years Annual revenues and costs: Sales revenues 375,000 300,000 Variable expenses 180,000 90,000 60,000 74,000 Depreciation expense Fixed out-of-pocket operating 90,000 70,000 costs Life of Project 6 year 5 years The working capital will be released 6th and 5th year of the project A and project I respectively, for investment elsewhere within the company. Required: 1. Calculate the net present value for each project. (4 Marks) 2. Calculate the simple rate of return for each product. (4 Marks) 1 Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why? (2 Mark) Present value are given below to determine the appropriate discount factor(s) using the tables provided. Table of present value $1 45 5% 6% 7% 0% 10% 11% 13% 14% Period 1 9% 8917 0962 0952 0.943 0.935 0.926 0.909 0.901 0305 0.877 2 0.925 0.907 0890 0873 0857 0542 0826 0812 0.703 0.769 0.009 0.064 0540 0816 0.794 0772 0751 0731 0.693 0675 0.855 0823 0.792 0763 0.735 0.708 0.603 20 659 0613 0592 0822 0.784 0.747 0.713 0.601 0650 0621 0590 0543 0519 0790 0.746 0705 0.006 0630 0596 0564 0535 0450 0.456 0760 0.711 0.665 0623 0.583 0547 0513 0.402 0425 0400 0.677 0.627 0502 0.731 0.540 0502 0467 0.434 0.376 0.351 0.703 0645 0.592 0644 0.500 0.460 0424 0333 0.391 0300 0676 0014 0.500 0.463 0.422 0.306 0.352 0295 0270 3 4 5 6 7 8 9 10 12% 0.093 0.797 0712 0.636 0.567 0.507 0452 0404 0.361 0.322 15% 0.870 0.756 0658 0572 0 497 0432 0.376 8.327 0204 17 . 6 10 11 12 9 13 14 15 Period 1 2 1% 0.990 1.970 2941 3902 4853 15.796 6720 7.652 8.566 9.471 10.368 11:250 12.134 13.004 13 065 2% 10.900 1942 2884 3800 4714 5601 6.472 7.326 8.162 0.983 9.787 10 575 11.340 12.106 12 849 %60 3% Table For the Present Value of an Ordinary Annuity of $1 4% 5% 6% 0.962 0.952 0.943 1.886 1559 1.833 2.775 2723 2.673 3.630 3546 3.465 4.452 4.330 4212 5242 5.076 4.917 002 5.706 5.582 6.733 6.463 6210 7.435 7100 6.002 8.111 7.722 7.360 0.761 7.007 9305 0304 9.906 0853 10.563 9296 11.118 9.712 0.971 1.914 2 829 3.717 4.500 5.417 6.230 7020 7.786 500 9.253 9954 10 636 11.206 11.938 0000 863 9.304 660 6 10 360 8% 30.926 1.703 2.577 3.312 3.900 4.623 5206 5.747 6.247 6710 7.130 7536 7.904 244 0.560 10% 0909 1.756 2.407 3.170 3.791 4350 inny 5335 5.709 145 6.490 6.814 7.103 7367 7.606 12% 0893 1991 2.400 037 3.000 4.111 4.564 4.968 5328 5.600 008 194 424 628 6811
