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The projects are mutually exclusive

Question 5 20 Marks You have a R10 million capital budget and must make the deasion about which investments your company should accept for the coming year. Use the following information on three mutualy exclusive projects to determine which investment your company should accept. The company's cost of capital is 11 percent Project 1Projec Project 3 , Initial cash outfo Year 1 cash inflow Year 2 cash inflow ooo,000 00 Year 3 cash inflow 00) (5,000, 000.00) (10,000,000.00) 4,000,000.00 2.500000.006,000,000.00 5.000,000.00 1 500,000 00 2000,000.00 3,000,000.00 3,000,000.00 5.1. Which project do you accept on the basis of NPV? 5.2 Which project do you accept on the basis of Pi? 5.3. f these are the onl investments available, which one do you select? 54. Now assume that another independent project is available to you. This project has a cost of R5 million, with an NPVof R1.5milion. Given the availability of this new project which of the mutually exclusive projects do you accept? 55. Is the NPV or PI the better technique in the situation described in part (5.4)? Why?13]