Question 4 Prancer Limited is looking into some potential investments projects. Relevant information is summarised below: Project Cost of Investment Year 1 2 3 4 5 6 Elva Blva $800,000 $800,000 Estimated net cash flows $ $ 110,000 150,000 160,000 200,000 240,000 250,000 290,000 290,000 320,000 340,000 390,000 390,000 The required rate of retum is 8%. [ Refer to Appendix A for discount factors] Year Cash Flow Discount Factor at Present Value (to fill the of Cash Flow discount factor) $ $ Note: Copy the above table and complete the calculations in the answer booklet. Required: a. Calculate the Net Present Value (NPV) of both projects. [18 marks) (Note: round off the values to the nearest dollar) b. Evaluate and advise the management which one of the projects should be undertaken, if any. [2 marks] Appendix A Present Value Table Present value of $1 received after n years discounted at i % i 1 2 3 4 5 67 8 9 10 n 10.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 2 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 3 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 50.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 70.9327 0.8706 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 8 0.9235 0.8535 0.7894 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 9 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 10 0.9053 0.82030.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 i 11 12 13 14 15 16 17 18 19 20 n 1 2 3 4 5 6 7 8 9 10 0.9009 0.8929 0.8116 0.7972 0.7312 0.7118 0.6587 0.6355 0.5935 0.5674 0.5346 0.5066 0.4817 0.4523 0.4339 0.4039 0.3909 0.3606 0.3522 0.3220 0.8850 0.7831 0.6931 0.6133 0.5428 0.4803 0.4251 0.3762 0.3329 0.2946 0.8772 0.7695 0.6750 0.5921 0.5194 0.4556 0.3996 0.3506 0.3075 0.2697 0.8696 0.8621 0.7561 0.7432 0.6575 0.6407 0.5718 0.5523 0.4972 0.4761 0.4323 0.4104 0.3759 0.3538 0.3269 0.3050 0.2843 0.2630 0.2472 0.2267 0.8547 0.8475 0.8403 0.7305 0.7182 0.7062 0.6244 0.6086 0.5934 0.5337 0.5158 0.4987 0.4561 0.4371 0.4190 0.3898 0.3704 0.3521 0.3332 0.3139 0.2959 0.2848 0.2660 0.2487 0.2434 0.2255 0.2090 0.2080 0.1911 0.1756 0.8333 0.6944 0.5787 0.4823 0.4019 0.3349 0.2791 0.2326 0.1938 0.1615