After paying GH¢ 30,000 for an initial investigation on projects assessments, the finance department of Finger Foods Plc provided the following end-of-year cash flows for the investment projects. Project Initial T0 Outlay ¢000 T1 ¢000 T2 ¢000 T3 ¢000 T4 ¢000 Abo (A) (1,500) (500) 1,200 600 300 Baa (B) (2,000) (1,000) 2,500 2,500 2,500 Cal (C) (1,750) 500 1,100 1,400 1,000 Dok (D) (2,500) 700 900 1,300 300 Eak (E) (1,600) (500) 200 2,800 2,300 You have just been promoted from the position of a Finance Officer to the new rank of A financial Analyst after your MBA programme. As a result, the managing director has w
After paying GH¢ 30,000 for an initial investigation on projects assessments, the finance department of Finger Foods Plc provided the following end-of-year cash flows for the investment projects.
|
Project |
Initial T0 Outlay ¢000 |
T1 ¢000 |
T2 ¢000 |
T3 ¢000 |
T4 ¢000 |
|
Abo (A) |
(1,500) |
(500) |
1,200 |
600 |
300 |
|
Baa (B) |
(2,000) |
(1,000) |
2,500 |
2,500 |
2,500 |
|
Cal (C) |
(1,750) |
500 |
1,100 |
1,400 |
1,000 |
|
Dok (D) |
(2,500) |
700 |
900 |
1,300 |
300 |
|
Eak (E) |
(1,600) |
(500) |
200 |
2,800 |
2,300 |
You have just been promoted from the position of a Finance Officer to the new rank of A financial Analyst after your MBA programme. As a result, the managing director has written a memorandum to you with the cash flows from the various projects, as shown above, to appraise the projects and advise management on the best decision the company can take to maximize the company's value. The company's cost of capital is 15% and its corporation tax is 30%.
Required:
Advise Finger Foods Plc management in the following circumstances.
- If the amount of cash available for the investments is limited to GH¢ 3 million, and all projects can be divided. Which projects should be accepted?
- If the amount of cash available for the investments is limited to GH¢ 3.5 million, and all the projects are independent and indivisible. Which projects should be accepted?
- If the projects are mutually exclusive, which one should be accepted?
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