A project has the following expected net cash flows associated with it: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 -R 800 000 R150 000 R200 000 R400 000 R100 000 R100 000 The cash flows are expressed in real terms. Adjust the cash flows to nominal terms assuming constant inflation of 5% and calculate the NPV of the project. The company in question has a WACC of 10%. a. R35 577 b. R37 777 c. R50 000 d. R150 000

A retail company is considering an expansion project with a NPV of -R10 million. The project entails building a warehouse with cutting edge inventory tracking and binning capabilities. The management team also identified a strategic option of running an e-commerce site, which would only be possible if the warehouse is built, in the near future. This strategic option has a NPV of R15 million associated with it. What would the Real NPV of the project be; and should the company accept the project given this real option?

a.

-R10 000 000

b.

R0

c.

R5 000 000

d.

R15 000 000

Fish Ltd., a fishery and wholesaler, is expanding into the red- meat sector. The management of Fish Ltd. is considering the financial viability of the expansion but are uncertain as to what discount rate to use for the NPV analysis. The risk free rate is 8%, the market risk premium is 6% while the beta for fish sector is 1.2 and for the red-meat sector is 1.0 and the company is wholly financed by equity. What discount rate should the company use?

a.

8.00%

b.

14.00%

c.

15.00%

d.

15.20%

A project has the following cash in and out flows in its first year:

Income generated: R100 000

Cost of sales R30 000

Depreciation R10 000

What would the tax payable for the first year of the project be if the tax rate is 27%?

a.

R16 200

b.

R17 900

c.

R18 200

d.

R30 000

company considering a project with extremely risky cash flows decides to apply a premium to the discount rate used to evaluate the project. The management of the company has set the following limits regarding the use of premia on discount rates:

If the CV of the project is less than 1, no premium is added.

If the CV of the project is 1 or more, but less than 1.5, the discount rate is multiplied by 1.5

If the CV of the project is 1.5 or more, the discount rate is multiplied by 2.

The project under consideration has a CV of 1.5 while the companys WACC is 10%. What would the discount rate employed to evaluate the project be?

a.

10%

b.

15%

c.

20%

d.

25%