Question: Glencore Plc has decided to explore new mining shafts in the Western Cape area. It has two main projects it would like to initiate in Knysna. You have been tasked to explore the viability of the two projects and advise the board of directors. An initial investment of R1 million has been made. The following are estimated future cash flows: 43 Paste LS CLO Intet Home & Cut Copy Format Panter Clipboard 9 Page Layout Times New Roman X, Font 12 A À Au Page 4 of 4 Words: 31/827 English (United States Project A Year 1 2 Mailings 13 14 IS p 7 18 b A 10 Beview View Paragraph Net Cash flows (R) Project A 100 100.00 250 500,00 125 350,00 250 000.00 128 700,00 256 789,00 300 500,00 250 000,00 100 100,00 200 500,00 11.1 Net present value * Determine the following for the project: Rate of Interest is 12% Determine the following for the project: Document4 - Microsoft Word . G Net Cash flows (R) Project B 250 000,00 250 500,00 125 350.00 250 000,00 100 000,00 75 650,00 85 000,00 150 000,00 300 000,00 200 500,00 (12) in AaBbCeEx AaBbCcD AaBbG AaBbc AaB AoBoCc ABCD 40BECCDA 1 Normal Ne Spact Heading 1 Heading 2 Time 四 1 Net present value 2 The payback period 3 Explain with reasons which method of investment appraisal you would prefer and why. == 110% A Change Styles- 5 C X Find- Replace Select- Edeing
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
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