QUESTION 1 [41 MARKS] ABC Holdings is considering two projects. The projects are similar in nature and...

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Accounting

QUESTION 1 [41 MARKS]
ABC Holdings is considering two projects. The projects are similarin nature and are expected to both operate for four years. Due tounavailability of funds to undertake both of them, only one projectcan be accepted. The cost of capital is 12%.
The following information is available:
Net cash flows
Project A Project B
N$000 N$000
Initial Investment 46000 46000
Year 1 17000 15000
Year 2 14000 13000
Year 3 24000 15000
Year 4 9000 25000
Estimated scrap value at the end of year 4 4000 4000
Depreciation is charged on the straight line basis.
1. Assuming that the management of ABC holdings have decided toundertake both projects and the projects can be undertaken in part,how much NPV will they get if they have N$80 000 000 available toinvest.
2. Explain three non-financial considerations that should betaken into account before a project is chosen

Answer & Explanation Solved by verified expert

4.2 Ratings (579 Votes)

Step 1 Since Organisation is having 2 projects and organisation can accept only one project due to lack of fund available Organisation should accept that project which result in higher NPV Net Cash Flows Project A Project B Particulars Year N000 PVF12 PV of Cash Flow N000 PVF12 PV of Cash Flow Initial OF 0 46000 1 46000 46000 1 See Answer

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		Net cash flows
	Project A	Project B
	N$000	N$000
Initial Investment	46000	46000
Year 1	17000	15000
Year 2	14000	13000
Year 3	24000	15000
Year 4	9000	25000
Estimated scrap value at the end of year 4	4000	4000