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Rand Water is evaluating five possible projects to enhance the efficiency of its water treatment plant. It is permitted to spend R110 000 on investment projects at Time 0. The cash flows for five proposed projects are: Year 0 1 2 3 4 Project 1 R'000 -35 0 0 65 0 7.2. Project 2 R'000 -50 30 30 30 0 7.3. Project 3 R'000 -20 10 10 10 10 Project 4 R'000 -30 15 15 15 15 The cost of capital is 12 per cent, all projects are divisible, and none may be repeated. The projects are not mutually exclusive. Project 5 R'000 -60 75 0 0 0 Required: 7.1. Which projects should be undertaken to maximise NPV in the presence of the capital constraint? (10) If the division was able to undertake all positive NPV projects, what level of NPV could be achieved? (5) If you now assume that these projects are indivisible, how would you allocate the available R110 000? (5) Rand Water is evaluating five possible projects to enhance the efficiency of its water treatment plant. It is permitted to spend R110 000 on investment projects at Time 0. The cash flows for five proposed projects are: Year 0 1 2 3 4 Project 1 R'000 -35 0 0 65 0 7.2. Project 2 R'000 -50 30 30 30 0 7.3. Project 3 R'000 -20 10 10 10 10 Project 4 R'000 -30 15 15 15 15 The cost of capital is 12 per cent, all projects are divisible, and none may be repeated. The projects are not mutually exclusive. Project 5 R'000 -60 75 0 0 0 Required: 7.1. Which projects should be undertaken to maximise NPV in the presence of the capital constraint? (10) If the division was able to undertake all positive NPV projects, what level of NPV could be achieved? (5) If you now assume that these projects are indivisible, how would you allocate the available R110 000? (5)
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PV Present Value of Cash Outflows Present Values of Cash inflows Present Value Cash inflow of nth ye... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
Posted Date:
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