Thodes Incorporated (Pvt) Ltd has identified several investment opportunities that will become available over the next three years and would...

Thodes Incorporated (Pvt) Ltd has identified several investment opportunities that will become available over the next three years and would like you to evaluate these projects. They have asked that you use the NPV and IRR methods to determine if these independent projects are acceptable. Each of these investments will occur one year apart and the cash flows will start one year after the investment is made.

Table-1:

Project

Cash Flows/Year (in thousands)

Length of Project

Cost and Date when Cost is incurred (in thousands)

A

$ 12,300.00

5 years

$12,000.00@ t=0 and $3000.00@t=1

B

$ 19,000.00

5 years

$ 17,000.00 @t=0 and $12000.00@t=3

C

$ 12,800.00

5 years

$ 15,000.00 @t=0

D

$ 12,100.00

5 years

$15,000.00 @t=0

The company currently has 2,000,000 shares outstanding and currently pays a dividend of $2 per share .With a high degree of certainty, Thodes has projected their income for the next four years as follows, which includes the annual cash flows from the investments selected above. The company has a debt to equity ratio of 50%, usually borrows at a before tax cost of 10% on its debt, tax rate is 25% and its equity holders require 11.5% return on their investment [hint: find WACC]

A. Tondhlana CUAC 207 Assignment June 2017

Table-2:

Year

Income before Taxes

1

$6,000.00

2

$8,000.00

3

$5,000.00

4

$7,000.00

Required:

i. Explaining your findings, what is the NPV and IRR for each project at the time the investment would be made?[10]