Maxim Inc. is considering two mutually exclusive projects. Project 1 requires an investment of

R40 000, while Project 2 requires an investment of R30 000. Cash revenues and cash costs

for each project are shown below.

PROJECT 1

YEAR 1 2 3 4

Revenues R13 000 R18 000 R35 000 R25 000

Variable costs 7 000 9 000 12 000 12 000

Fixed costs 1 000 2 000 3 000 1 000

PROJECT 2

YEAR 1 2 3 4

Revenues R22 000 R38 000 R16 000 R9 000

Variable costs 12 000 21 000 8 000 5 000

Fixed costs 4 000 3 000 2 000 1 000

The company estimates that at the end of the fourth year, Project 1 will have a salvage value

of R3000 and Project 2 will have a salvage value of R1000.

Required:

a. Determine the net present value of EACH project using a 16% discount rate.

b. Recommendations Include supporting calculations in good form.