Project Decision Assignment | Homework For You

Required

(a) Determine the sensitivity of project A to a change in cost of capital (6)

b) Determine the sensitivity of project B to a change in initial investment (2)
c)Assuming that the management of ABC holdings have decided to undertake both projects and the projects can be undertaken in part, how much NPV will they get if they have N$80 000 000 available to invest. (5)
d) Explain three non-financial considerations that should be taken into account before a project is chosen. (6)

QUESTION 1 [41 MARKS] ABC Holdings is considering two projects. The projects are similar in nature and are expected to both operate for four years. Due to unavailability of funds to undertake both of them, only one project can 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 46 000 46 000 15 000 Year 1 Year 2 Year 3 17 000 14 000 24 000 9 000 4 000 13 000 15 000 25 000 Year 4 Estimated scrap value at the end of year 4 4000

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