Question: Question 8 15 marks Consider the projects whose cash flows are listed below. Assume that projects have the same risk Now End-of-Year 1 End-of-Year 2

Question 8 15 marks Consider the projects whose cash flows are

Question 8 15 marks Consider the projects whose cash flows are listed below. Assume that projects have the same risk Now End-of-Year 1 End-of-Year 2 End-of-Year 3 Project A (In Rands) -R16 000 10 500 9 100 3 000 Project B (In Rands) -R3 200 3 300 1 260 600 8.1. 8.2. 8.3. Calculate the net present value (NPV) and the profitability index (PI) for the two projects. Assume a 12% discount rate. (8) Which of the projects is better according to each of the two methods? (2) What is the explanation for the differences in rankings between the NPV and PI methods of analysis? (3) Which method is correct? Why? (2) 8.4

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