Ghana beyond Aid & Associates (GBAA) is considering which of these mutually exclusive projects it should undertake. GBAA has identified two capital expenditure proposals. Both proposals are for similar products and both are expected to operate for four years. Only one proposal can be accepted. The Finance director thinks that the project with the higher NPV should be chosen whereas the Managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10% and the net after tax cash flow of the projects are as follows: Profits/(losses)

Proposal A ($) Proposal B ($)

Initial Investment 46,000 46,000

Year 1 6,500 4,500

Year 2 3,500 2,500

Year 3 13,500 4,500

Year 4 (1,500) 14,000

Estimated Scrap Value at end of year 4 4,000 4,000

Depreciation is charged on the straight-line basis.

The company estimates its cost of capital at 20% per annum.

Discount Factor

Year 1 0.833

Year 2 0.694

Year 3 0.579

Year 4 0.482

Required: Ascertain by computing the following for both proposals

a) Depreciation charge for each project

b) Discounted Payback Period (DPBP) and Internal Rate of Return (IRR) of both DOFI & TOFI projects

c) Recommend, with reasons which project you would undertake and identify whether the Finance Directors view would be relevant.

d) Identify at least any four (4) advantages of IRR over DPBP