The Zeda Company Ltd. is considering a substantial investment in a new production process. From a variety of sources, the total cost of the project has been estimated at Sh.20 million. However, if the investment were to be increased to Sh.30 million, the productive capacity of the plant could be substantially increased. Due to the nature of the process, it would be exorbitantly expensive to increase capacity once the equipment is installed.

Once of the problems facing the company is that there is a considerable degree of uncertainty regarding demand for the product. After some research which has been conducted jointly by the marketing and finance departments, some data has been produced. These are shown below:

Investment A (Sh.20 m)				Investment B (Sh.30m)
	Year	Demand Probability	Annual Net Cash Flow	Demand Probability	Annual Net Cash Flow
			Sh.(million)		Sh.(million)
1.	1 - 4	0.4	6	0.3	10
	5 - 10	0.4	5		7
2.	1 - 4	0.4	6	0.5	8
	5 - 10		2		4
3.	1 - 10	0.2	2	0.2	1

Cost of capital for the firm is 10%.

REQUIRED:

(a) Prepare a statement which clearly indicates the financial implications of each of the two alternative investment scenarios. (10 marks)

PVIFA: 10% 5 years = 3.79

PVIFA: 10% 10 years = 6.14

PVIFA: 10% 10 years = 0.62