Question 2 10 Marks

AS is evaluating a project that is expected to generate the following cash flow stream:

Expected Cash Flow

Now -R 100 000

End-of-year 1 R 50 000

End-of-year 2 R 50 000

End-of-year 3 R 50 000

Required:

2.1. If the projects cost of capital is 12 percent, what is the present value of the projects expected cash flow stream? (4)

2.2. What is the net present value of the project? (2)

2.3. What is the profitability index of the project? (2)

2.4. Should the project be undertaken? Explain. (2)