- 25 Marks
QMDM – APR 2024 – L2 – Q6 – Rural Bank Investment Proposals NPV
The management of a Rural Bank must decide between two investment proposals using Net Discounted Value (NPV) calculations at a 14% discount rate, explain the term, compute NPVs, and advise on selection.
Question
The Management of a Rural Bank must decide between two proposals, on the basis of the following information:
| Proposal | Investment Now | Net Cash Inflow at the End of | 1991 | 1992 | 1993 |
|---|---|---|---|---|---|
| A | GHS 80,000 | GHS 95,400 | GHS 39,400 | GHS 12,000 | |
| B | GHS 100,000 | GHS 35,000 | GHS 58,000 | GHS 80,000 |
Assume that on Projects of this type of the company can earn 14 percent per annum. (a) Explain briefly the term Net Discount Value in relation to the projects. (b) Calculate the Net Discounted Value of Proposal A. (c) Calculate the Net Discounted Value of Proposal B. (d) Using the values in (a) and (b), advise Management regarding the proposal that should be selected.
Find Related Questions by Tags, levels, etc.
- Tags: Decision Making, Discounted Cash Flow, Investment Appraisal, Net Present Value, NPV, proposals, rural bank
- Level: Level 2
