QUESTION $5(20$ MARKS$)$

A firm is considering two capital projects: Project Zeta and Project Omega. The firm$$s required rate of return is $12$ percent.

Projects

Year Zeta Omega

$0($R$5000000)($R$450000)$

$1$ R$200000$ R$420000$

$2$ R$150000$ R $90000$

$3$ R$300000$ R$18500$

Required

a$)$ Compute the Net Present Value $($NPV$)$ for

i$.$ Project Zeta $(4$ marks$)$

ii$.$ Project Omega $(4$ marks$)$

b$)$ Which project should be purchased if the projects are mutually exclusive? Explain why. $(4$ marks$)$

c$)$ What are the advantages and disadvantages of using NPV as a capital appraisal technique $(8$ marks$)$