Question: A Company Intends To Invest In Project M And Y Whose Original Cost Sh. 140 Million And Sh. 175 Million Respectively. Installation Charges For M Is Sh. 2 Million And Transportation Of Sh. 1 Million While For Y Installation Costs Will Be Sh. 800,000 And Transportation Of Sh. 156,000. The Working Capital Recouped At End Of 5 Years For Both Projects Is …

A company intends to invest in project M and Y whose original
cost sh. 140 million and sh. 175 million respectively. Installation
charges for M is sh. 2 million and transportation of sh. 1 million
while for Y installation costs will be sh. 800,000 and
transportation of sh. 156,000. The working capital recouped at end
of 5 years for both projects is sh. 680,000. A Project manager will
earn a salary of sh. 100,000 per month to run both projects hence
should be share proportionately. Investors in the company are
demanding a rate of compensation of 14 % and the company pays tax
at the rate is 30%. Depreciation is on cost at the rate of 10% with
residue value of sh.400,000 for Project M and non for Project
Y.
The expected cash flows and probability is as follows:
          
Project M         
               Probability    
Project Y
Year 1 sh. 12
Million                  
0.2                  
14 Million
Year 2 sh. 10
Million                  
0.1       
           12
Million
Year 3 sh. 8
Million                    
0.3                  
10 Million
Year 4 sh. 13
Million                  
0.2                   
6 Million
Year 5 sh. 9
Million                  
  0.2                   
4 Million
The company expects to abandon the projects with the following
values

                                       
Project
M                                
Project Y
Year 1 sh. 130
Million                            
140 Million
Year 2 sh. 115
Million                     
       120 Million
Year 3 sh. 100
Million                             
90 Million
Year 4 sh. 80
Million.                               
60 Million

               
Required

What is the Net Present Value of the projects, should the
projects be undertaken

                                                                                                          
(10 marks)

Suppose the Company wants to abandon the projects, assess which
year is the best for such
decision                                       
                                       (6
marks)
Determine the project with the highest
risk        
                              (4
marks)