Sipho has asked your help in determining the viability of a capital project he is looking into.

The capital outlay is on safety equipment for the factory and he wants to see if the proposed savings exceed the cost of the project. The company uses its current WACC plus $2\%$ as the hurdle rate for all projects.

Other information provided is as follows : $-$

Help Sipho calculate whether this project has a positive NPV and advise him of anything else he may consider before arriving at his final decision

Assume that the cashflows are earned ar the end of the year

Debt : Equity Ratio of Sipho$$s Co $100\%$

Prevailing Corporate Tax Rate $30\%$

Equity return expectations $18\%$

Cost of Borrowings for Sipho$$s Co$.10\mathrm{.}50\%$

Ke

Kd

D$/$E

D$/$TC

WACC

Discount rate

Cash flows associated with the project

$01234$

Year $0$ Year $1$ Year$2$ Year $3$ Year $4$

Cashflows $(400,000)100,000120,000150,000200,000$

PV

NPV