QUESTION 1 [41 MARKS] ABC Holdings is considering two projects. The projects are similar in nature and are expected to both operate for four years. Due to unavailability of funds to undertake both of them, only one project can be accepted. The cost of capital is 12%. The following information is available:

		Net cash flows
	Project A	Project B
	N$000	N$000
Initial Investment	46000	46000
Year 1	17000	15000
Year 2	14000	13000
Year 3	24000	15000
Year 4	9000	25000
Estimated scrap value at the end of year 4	4000	4000

Depreciation is charged on the straight line basis.

a) Calculate the following for both proposals:

(i) the payback period (round off your answer to one decimal place)

(ii) the net present value (NPV)

(iii) the return on investments (ROI)

(iv) the residual income (RI)

(v) If the two projects are mutually exclusive, which project should be chosen and why?

(b) Determine the sensitivity of Project A to a change in cost of capital

(c) Determine the sensitivity of Project B to a change in initial investment

(d) Assuming that the management of ABC holdings have decided to undertake both projects and the projects can be undertaken in part, how much NPV will they get if they have N$80 000 000 available to invest.

(e) Explain three non-financial considerations that should be taken into account before a project is chosen.