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Sefalana (Pty) Ltd is evaluating two projects that have an expected life of five years...

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Accounting

Sefalana (Pty) Ltd is evaluating two projects that have an expected life of five years and an initial investment outlay of P1 million. Below are the estimated net cash inflows for each project:

Year

Cash flows - Project A (Pula)

Cash flows -Project B (Pula)

1

300,000

400,000

2

320,000

400,000

3

370,000

400,000

4

430,000

400,000

5

550,000

400,000

The cost of capital for both projects is 10 per cent.

Required:

Advise management on the project that they can invest in based on the following:

Net Present Value (NPV).

Sefalana (Pty) Ltd is evaluating two projects that have an expected life of five years and an initial investment outlay of P1 million. Below are the estimated net cash inflows for each project:

Year

Cash flows - Project A (Pula)

Cash flows -Project B (Pula)

1

300,000

400,000

2

320,000

400,000

3

370,000

400,000

4

430,000

400,000

5

550,000

400,000

The cost of capital for both projects is 10 per cent.

Required:

Advise management on the project that they can invest in based on the following:

a. Net Present Value (NPV).

b. Internal Rate of Return (IRR). (10 marks)

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