The BrookeHill Group of schools is considering investing ksh 1,250 million in an Ultra-modern primary school in Kajiado County. It can make the investment immediately and start generating cash flows at the end of the first year. If the investment is made immediately, there is a 65% chance that the school will be successful and expected net cash flows will be ksh. 430 million per year and a 35% chance of technicalities that will reduce expected net cash flows to only ksh. 70 million per year.

The cash flows would continue for 23 years. However, concerns are arising on the governments intent to implement the Competency Based Curriculum (CBC) that makes it look likely that the current focus on KCPE marks in class 8, which is the schools proposition to the market would be questionable. BrookeHill can wait for 4 years before making any investment in which time it will have become clear whether the CBC concept is feasible and whether the cash flows would be ksh 430 million or ksh 70 million.

The cost of capital applicable for BrookeHills projects is 13% p.a.

Required:

Perform the ROA and advise the board of BrookeHill on whether to invest in the new school immediately or delay for 4 years.