Shell Camping Gear is considering two projects. Each requires an initial investment of

R1 000 000. John Shell, CEO of the company, has set a maximum payback period of

four years. Information regarding the forecasted net cash flows from each product is

presented below:

Project X Project Y

R R

Year 1 100 000 400 000

Year 2 200 000 300 000

Year 3 300 000 200 000

Year 4 400 000 200 000

Year 5 500 000 200 000

Shell Camping Gears discount rate (WACC) is 14% and the corporate tax rate is 28%.

REQUIRED:

5.3 Evaluate the two (2) projects Shell Camping Gear is considering and

recommend, with justification, which project Shell Camping Gear should accept.

Your answer should include:

a) The payback period (2)

b) The NPV (6)

c) The IRR (2)

d) Recommendation (5)

(SHOW ALL WORKINGS)