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[20] QUESTION TWO XYZ Ltd plans to embark on a certain project. Two options are...

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[20] QUESTION TWO XYZ Ltd plans to embark on a certain project. Two options are available, Project A and Project B. The expected cash flows over 5 years are given in the table below. The projects do not have a residual value. Project A will cost R114 000 and Project B will cost R172 000 to start. Assume a cost of capital of 14% per annum. Year Project A 32 500 32 500 32 500 32 500 32 500 Project B 40 000 40000 40 000 40000 40 000 5 Determine which project is more lucrative if: 2.1 The payback rule is applied. 2.2 The Net Present Value (NPV) rule is applied. (12) NB: Use the following discount factors. Discount Factors 0.877 0.769 0.675 0.592 0.519 Year

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