Question

Question 1 (20 marks)Oshakati Motors is considering buying a new equipment with an initial investment value of N$350 000. The equipment has a 5-year life and no residual value at the end of the five years. There are many uncertainties in the industry and, therefore, the company has estimated cash inflows for three different scenarios: pessimistic, most likely and optimistic. The following table lists the company’s cost of capital is 10.5%, and expected cash flows. Expected cash flowsYear Pessimistic (N$) Most likely(N$) Optimistic(N$)1 55 000 68 000 85 6002 400 00 58 700 76 3003 56 200 78 500 125 2004 36 800 72 500 114 4205 29 500 42 260 91 100Required:a) Calculate the NPV for each given scenario. (18 marks)b) Should Oshakati Motors make this investment? Why or why not? (2marks)​

Answer 1

Answer:

The equipment has a 5-year life and no residual value at the end of the five years. There are many uncertainties in the ...

Explanation:

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