Read the following scenario before answering the questions that follow.

As the CEO of her company, one of Bethanys annual priorities is to assist Anthony her Chief Financial Officer (CFO) in planning and calculating WorkWizards budget for the coming year. Every year, a key part of budgeting involves figuring out how best to divide the budget across potential investment opportunities. Although WorkWizard constantly identifies, and is inundated with, investment opportunities, the limited budget allocated to investments means that each opportunity needs to be carefully assessed. Once this is done, Bethany and her executive committee choose the most appropriate, and most financially-sound investment options, leaving the remainder of WorkWizards budget available for any expenses throughout the year.

In the past week, WorkWizard has received the following three investment proposals:

Option 1:

The first investment proposal is from Paper Trail, a company that specialises in utilising print media (such as newspapers, magazines, and flyers) to provide more publicity and exposure to businesses. In its proposal, Paper Trail details WorkWizards projected cash flow as a result of using its services over a five-year investment. Following an initial investment capital of R50,000, WorkWizard will receive cash inflows of R11,000 in year one, R7,500 in year two, R10,500 in year three, R12,000 in year four, and R15,000 in the final year.

Option 2:

The second investment proposal is from Data Detectives, a data consulting company comprising data analysts who are outsourced to companies to improve their data analysis capabilities. Through Data Detectives, companies are able to collect data about themselves and their clients, and analyse said data to draw conclusions around how to improve their services. Data Detectives also details WorkWizards projected cash flow as a result of using its services over a five-year investment period. Following an initial investment of R100,000, WorkWizard will receive cash inflows of R20,000 in year one, R25,000 in year two, R30,000 in year three, R15,000 in year four, and R40,000 in year five.

Option 3:

The third investment proposal is from The Green Agenda, a company focused on environmental sustainability and ensuring that companies (specifically large companies) remain environmentally conscious and lessen their impact on the environment. The Green Agenda has identified WorkWizard as being one such company that would benefit from its services, which range from introducing recycling initiatives to promoting a paperless workspace. In its proposal, The Green Agenda outlines WorkWizards projected cash flow through using its services over a five-year investment. Following an initial investment of R50,000, WorkWizard will receive cash inflows of R8,000 in year one, R10,000 in year two, R13,500 in year three, R16,500 in year four, and R13,000 in the final year as a result of efficiencies gained.

Based on the summaries of the proposals above, it is up to Bethany and her executive committee to decide which investment option to pursue, should any of them prove to be financially viable. In order to complete the necessary calculations, Bethany will be using an interest rate (required rate of return) of 6%. Additionally, Bethanys CFO informs her that the internal rate of return that they will need for their calculations is also 6%. This is because he believes that they can earn a 6% return by investing in their own shares.

The current investment budget that Bethany and the executive committee have to plan with is limited at R100,000 for local investments. While Bethany may choose to use the budget to invest in one or more of the many investment proposals that WorkWizard is inundated with, she also has the option to invest the money in other investment assets, such as shares, bonds, or an alternative asset class.

Question 1

1.1 If Bethany chooses to reinvest the R100,000 local investment budget (at an internal rate of return of 6%) into purchasing shares in the company, calculate the FV of WorkWizards R100,000 investment, over a five-year period. (Max. 5 lines.)

1.2 If Bethany chooses to forego all investments, in favour of receiving a R100,000 cash inflow from one of WorkWizards external investors five years from now, what would the PV of that external investment (R100,000) be? (Max. 5 lines.)

Question 2

If you were the CEO of WorkWizard, which of the three investment options outlined in the case study would you choose to invest the R100,000 investment budget in? Your answer should include calculations around the net present value (NPV) of each investment, as well as a recommendation on whether or not to invest based on each options NPV and the allocated investment budget. Please note, this question is separate from Question 1. (Max. 30 lines.)