Suppose youre a financial analyst at a company, and you are recommending whether the company should invest in Project A or Project B Each of the two projects has been proposed by a lead engineer, but the company can only invest in creating one of them this year, and so your manager wants you to give her advice on which one to invest in Your companys WACC is 9 , so youll use 9 as your discount rate Here are the two projects Project A Project B Year Cash Flow (GHC) Cash Flow (GHC) 0 3 Million, initial investment 3 Million, initial investment 1 2 Million Profit 0 Million 2 4 Million Profit 0 Million 3 4 Million profit 0 Million 4 2 Million, Profit 0 Million 5 0 Million, Project Closeout 14 Million Profit Project A starts with an initial investment to make a tech product, followed by a growing income stream, until the product becomes obsolete and is terminated Project B starts with an initial investment to make a different product, and makes no sales, but the whole product is expected to be sold in five years to some other company for a large payoff of GHC14 million Which project, assuming both carry the same risk, should the financial analyst recommend to her manager (8 marks)

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Suppose youre a financial analyst at a company, and you are recommending whether the company should invest in Project A or Project B. Each of

Suppose youre a financial analyst at a company, and you are recommending whether the company should invest in Project A or Project B. Each of the two projects has been proposed by a lead engineer, but the company can only invest in creating one of them this year, and so your manager wants you to give her advice on which one to invest in. Your companys WACC is 9%, so youll use 9% as your discount rate.

Here are the two projects:

Project A		Project B
Year	Cash Flow (GHC)	Cash Flow (GHC)
0	-3 Million, initial investment	-3 Million, initial investment
1	2 Million Profit	0 Million
2	4 Million Profit	0 Million
3	4 Million profit	0 Million
4	2 Million, Profit	0 Million
5	0 Million, Project Closeout	14 Million Profit

Project A starts with an initial investment to make a tech product, followed by a growing income stream, until the product becomes obsolete and is terminated. Project B starts with an initial investment to make a different product, and makes no sales, but the whole product is expected to be sold in five years to some other company for a large payoff of GHC14 million. Which project, assuming both carry the same risk, should the financial analyst recommend to her manager? (8 marks)