The management of Kleinburg Industrial Bakery is analyzing two competing investment projects and they must decide which one can be done immediately and which one can be postponed for at least a year. The details of each proposed investment are shown on the next page. The bakery has a 12% required rate of return to evaluate all investments that directly impact operations and amortizes the investment in plant and equipment using straight-line amortization over ten years on the difference between the initial investment and terminal disposal price.
REQUIRED
1. Calculate the net present value of each proposal.
2. Which project should the bakery choose on the basis of the NPV calculations?
3. Mention which strategic factors must be considered by the managers when ranking the projects.

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Project: Increase Capacity Project: Upgrade to Serve New ets Customer Service Proposed by Rationale Production manager Assets are operating at Sales and marketing manager The fleet of trucks and vans full capacity and we are unable to attend to all the demand, therefore we need to expand our facilities to produce more kilograms. need to be upgraded with tracking devices and remote connections to flex the planning of routes. The new software will allow the company to be paperless and respond faster to customers requests. Investment Working capital Terminal disposal value Expected useful life Expected increase in S600,000 S 50,000 S60,000 10 years $345,000 $150,000 None years $80,000 $40,000 operating income S400,000 savinS in administrative costs one