Agbavi Solutions, a Ghana-based software development and IT services company, has experienced tighter capital constraints over the past year due to lower profits and higher costs of external financing. Moreover, shareholders have pressed for higher dividends, limiting the company’s ability to channel earnings into growth initiatives.

After an inconclusive meeting, the Directors of the company scheduled another meeting to approve the company’s capital projects budget for implementation in the upcoming financial year. During the previous meeting, the Directors reflected on the need to meet shareholders’ dividend expectations while allocating sufficient capital to strategic investments in the coming year and agreed to cap the capital investments budget for the coming year at GH¢300 million, comprising a maximum of profit reinvestment of GH¢120 million and a new bank loan of GH¢180 million. The Directors will approve the projects that should be implemented in the coming period, subject to the capital constraint at the next meeting.

The table below presents the financial appraisal results of six independent projects that will be tabled for board approval at the upcoming meeting:

Required: a) Assuming the projects are divisible, recommend the portfolio of projects that should be funded in the coming year.

b) Assuming the projects are indivisible, recommend the portfolio of projects that should be funded in the coming year. (7 marks) c) Suppose the bank grants the loan to Agbavi Solutions at an annual nominal interest rate of 25% and requires repayment of the loan with the interest in monthly equal instalments over five years. Compute the size of each monthly instalment. (5 marks)

(Total: 20 marks)