Question Three: (10 marks)

a) NDAH Pharmaceutical Corporation expects the cash inflows from an investment to be XAF 50 million after 2 years and another XAF 40 million after 3 years. Its target rate of return is 12%. Calculate the present value of these future returns and explain what this present value signifies. (4mks)

b) An Organisation with a cost of capital of 14% is considering investing in a project costing XAF500 million that will yield cash inflow of XAF100 million per annum continuously for 20years. Assess whether the project should be undertaken. (3mks) c) The market rate of interest for risk free assets is 8%. Stuart promises to pay you XAF150000 in one year in exchange for XAF 125000 now. How much is the promise worth to you? Solve using both the present value and the future value equations. Would you take the offer? Why? (3mks)