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Trailblazers (Pty)Ltd is considering two mutually exclusive project proposals for new investment. The initial outlay of both projects is R300,000, but will yield different levels
Trailblazers (Pty)Ltd is considering two mutually exclusive project proposals for new investment. The initial outlay of both projects is R300,000, but will yield different levels of cash flows over the life of the project. The projects are estimated to last for five years. They will have no residual value at the end of their lives. Depreciation is charged on a straight line basis. The company uses a 6% discount rate for the cost of capital. The cash flows of both projects are as follows: Year 1 2 Project A Cash flows 80000 80000 80000 100000 100000 Project B Cash flows 100000 100000 90000 80000 40000 3 4 5 Required: a) Appraise each project using: 1) The payback method (10 marks) ii) The Net present value method (8 marks) b) Based on your results from (a), explain which project the company should choose. (7 marks)
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