Question
QUESTION TWO [25] AMBC (Pty Ltd) is considering investing in one of three potential projects. The details of the three projects being considered are summarised
QUESTION TWO [25] AMBC (Pty Ltd) is considering investing in one of three potential projects. The details of the three projects being considered are summarised below: Year Project A Project B Project C 0 (R 38 000) (R 78 000) (R 25 000) 1 R 11 000 R 42 200 R 11 000 2 R 11 000 R 18 000 R 4 000 3 R 11 000 R 18 000 R 2 000 4 R 12 000 R 17 000 R 1 000 Present value factors based on 10 % cost of capital for the duration: Year 1 = 0.909 Year 2 = 0.826 Year 3 = 0.751 Year 4 = 0.683. You are required: 2.1 Determine which of the above projects has the highest net present value. Assume the cost of capital to be 10%. (12) 2.2 Determine which of the above projects has the shortest payback period. (9) 2.3 Briefly discuss the merits of the NPV method. (4)
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