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1.1 Discuss about total risk and market risk associated with project investments. (8) ...

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Finance

1.1 Discuss about total risk and market risk associated with project investments.
(8)
1.2 The IndiFood restaurant is planning to open a new site in either Durban or Pretoria, and they would like to know which is the most viable option. The company's cost of capital is 10% for each project, and the initial investment is R2000000(R2m). The following estimated cash flows are given:
Pretoria has the following estimated cash flows:
\table[[Year,0,1,2,3,4],[Cash flow,-2000000,R600000,R400000,R700000,R800000]]
Durban has the following estimated cash flows:
\table[[Year,0,1,2,3,4],[Cash flow,-2000000,R600000,R800000,R800000,R900000]]
1.2.1 Calculate the NVP (net present value) of each project and recommend which project the company should select. (present your answer in an NPV table)
1.3 A company is debating whether to commit to the project of constructing a new warehouse. The cost of the investment is R10000000(R10m) and will results in equal cash flows of R4000000(R4m) for four years. The company's cost of capital is 12% for this project.
1.3.1 Calculate the project's NVP and state if the project should be accepted or not.
(2)
1.3.2 Calculate the IRR (internal rate of return) of this project.
(3)
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