QUESTION ONE a. An investment in an item of equipment would cost GH150,000. It is estimated that sales in the first year would be GH120,000 rising by 10% a year for the next four years. Variable costs would be 50% of sales. Annual fixed costs would be GH40,000 in the first three years, rising to GH60,000 in years 4 and 5. Fixed costs of 60% would be avoidable if the project did not go ahead. The scrap value of the equipment at the end of year 5 would be GH10,000. The project would also require an investment in working capital of GH30,000 at the start of year 1 rising to GH40,000 at the start of year 2 and to GH50,000 at the start of year 4. The company's cost of capital is 9%. Required: Calculate the NPV of the project and suggest whether it should be undertaken. (10 marks) b. Sesesey Ltd needs to increase its working capital by investing to the tune of GH400,000. The company has two alternative options as follows: Options One: To take a trade discount granted on the basis of 4/40 net 100. Option Two: Borrow from the Bank with an interest rate of 25% per annum. The bank requires a matching contribution of 40% to be put in a current account yielding no interest. The full loan amount will be booked in the name of Sesesey Ltd. Required: Advise the company on which option it should select. (5 marks) (Total: 15 marks)