CASE STUDY Investment Appraisal Exercise You have been engaged as a consultant to advise on...
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CASE STUDY Investment Appraisal Exercise You have been engaged as a consultant to advise on whether a new farming enterprise is financially viable or not. The projected cash flows are as follows: | 2020 - Year 1 || 2021 - Year 2 || 2022-Year 3 || 2023 - Year 4 || 2024-Year 5 ZMK . ZMK ZMK I ZMK ZMK Total Cash inflows | 18,000,000.00 |||56,800,000.00 | 61,080,720.00 |||60,042,480.00 || 67,800,120.00 9,009,920.00 20,800,408.00 23,590,492.00 26,581,596.68 30,074,363.22 Total Cash outflows The initial cost of the investment including initial working capital is estimated to be K 36,909,128.00 which will be incurred at start of the project. The financing arrangement has been arranged as follows: Equity capital of K20,000,000 and the cost of equity is 25% per annum. Long term loan of K17,000,000 and the interest rate is 35% per annum. Required: 1. Calculate the weighted average cost of capital. 7 marks 2. Calculate the following financial viability indicators a. Undiscounted Payback period -5 marks b. Discounted payback period - 5 marks C. NPV - 14 marks d. Profitability Index-5 marks e. Internal Rate of Return - 10 marks 3. Advise whether the project is financially viable based on viability indicators calculated above. 9 marks
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