QUESTION $2$

$(20$ Marks$)$

$2\mathrm{.}1$ "Packer was spending $20$ percent on R&D$,$ and only a small percentage of the projects that started

$(6$ marks$)$

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out in the conceptual phase ever reached the commercialization phase, where Packer could expect to recover its R&D costs." Identify and explain the model that Packer Telecom can use to determine the time it will take to recoup its R&D initial investments.

$2\mathrm{.}2$ If Packer Telcom has two R&D projects to consider, Project A with an initial investment of R$75$

$(8$ marks$)$

million with projected annual cash inflows of $R9,5$ million. Project $B$ with an initial investment of $R40$ million and projected annual cash inflows of R$12,5$ million. Calculate the payback for both projects and identify the best option.