Mr Pumba (Head of Recruitment) was very pleased with your interview and you were appointed immediately....

 

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Mr Pumba (Head of Recruitment) was very pleased with your interview and you were appointed immediately. Your first task is as follows: Pride Ltd is exploring the idea to expand their business into the water leisure industry. Pride identified an opportunity to invest in a new water park, The Water Hole, and did a feasibility study as part of their research on the industry and the SWOT analysis applicable to this water park. Pride's management is considering this new opportunity and requested your assistance to complete the business case analysis and arrive at a decision. The following information is available for this purpose: Year 1 2 3 4 5 Net cash flows 3 300 000 3 390 000 4 210 000 4 320 000 5 280 000 Additional information: • The investment cost required to develop the software is R3 900 000. • The company's required return on investment is 11%. 2.2 • The net present value at 11% is R2 690 900. • It is recommended that you also use an alternative required return rate of 13% for your analysis. Required: Show all formulas and calculations. 2.1 Use the information provided to calculate the internal rate of return (IRR) for this investment. (15) Recommend to Pride's management whether they should invest in The Water Hole. Provide reasons for your recommendation. (4) Mr Pumba (Head of Recruitment) was very pleased with your interview and you were appointed immediately. Your first task is as follows: Pride Ltd is exploring the idea to expand their business into the water leisure industry. Pride identified an opportunity to invest in a new water park, The Water Hole, and did a feasibility study as part of their research on the industry and the SWOT analysis applicable to this water park. Pride's management is considering this new opportunity and requested your assistance to complete the business case analysis and arrive at a decision. The following information is available for this purpose: Year 1 2 3 4 5 Net cash flows 3 300 000 3 390 000 4 210 000 4 320 000 5 280 000 Additional information: • The investment cost required to develop the software is R3 900 000. • The company's required return on investment is 11%. 2.2 • The net present value at 11% is R2 690 900. • It is recommended that you also use an alternative required return rate of 13% for your analysis. Required: Show all formulas and calculations. 2.1 Use the information provided to calculate the internal rate of return (IRR) for this investment. (15) Recommend to Pride's management whether they should invest in The Water Hole. Provide reasons for your recommendation. (4)

Answer rating: 100% (QA)

INTERNAL RATE OF RETURN IRR IRR is the rate at which NPV 0 It is the growth rate of a business The m... View the full answer