Read the following scenario before answering the questions that follow. As the CEO of her company, one of Bethany’s annu

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Read the following scenario before answering the questions that
follow.
As the CEO of her company, one of Bethany’s annual priorities is
to assist Anthony – her Chief Financial Officer (CFO) – in planning
and calculating WorkWizard’s budget for the coming year. Every
year, a key part of budgeting involves figuring out how best to
divide the budget across potential investment opportunities.
Although WorkWizard constantly identifies, and is inundated with,
investment opportunities, the limited budget allocated to
investments means that each opportunity needs to be carefully
assessed. Once this is done, Bethany and her executive committee
choose the most appropriate, and most financially-sound investment
options, leaving the remainder of WorkWizard’s budget available for
any expenses throughout the year.
In the past week, WorkWizard has received the following three
investment proposals:
Option 1:
The first investment proposal is from Paper Trail, a company
that specialises in utilising print media (such as newspapers,
magazines, and flyers) to provide more publicity and exposure to
businesses. In its proposal, Paper Trail details WorkWizard’s
projected cash flow as a result of using its services over a
five-year investment. Following an initial investment capital of
R50,000, WorkWizard will receive cash inflows of R11,000 in year
one, R7,500 in year two, R10,500 in year three, R12,000 in year
four, and R15,000 in the final year.
Option 2:
The second investment proposal is from Data Detectives, a data
consulting company comprising data analysts who are outsourced to
companies to improve their data analysis capabilities. Through Data
Detectives, companies are able to collect data about themselves and
their clients, and analyse said data to draw conclusions around how
to improve their services. Data Detectives also details
WorkWizard’s projected cash flow as a result of using its services
over a five-year investment period. Following an initial investment
of R100,000, WorkWizard will receive cash inflows of R20,000 in
year one, R25,000 in year two, R30,000 in year three, R15,000 in
year four, and R40,000 in year five.
Option 3:
The third investment proposal is from The Green Agenda, a
company focused on environmental sustainability and ensuring that
companies (specifically large companies) remain environmentally
conscious and lessen their impact on the environment. The Green
Agenda has identified WorkWizard as being one such company that
would benefit from its services, which range from introducing
recycling initiatives to promoting a paperless workspace. In its
proposal, The Green Agenda outlines WorkWizard’s projected cash
flow through using its services over a five-year investment.
Following an initial investment of R50,000, WorkWizard will receive
cash inflows of R8,000 in year one, R10,000 in year two, R13,500 in
year three, R16,500 in year four, and R13,000 in the final year as
a result of efficiencies gained.
Based on the summaries of the proposals above, it is up to
Bethany and her executive committee to decide which investment
option to pursue, should any of them prove to be financially
viable. In order to complete the necessary calculations, Bethany
will be using an interest rate (required rate of return) of 6%.
Additionally, Bethany’s CFO informs her that the internal rate of
return that they will need for their calculations is also 6%. This
is because he believes that they can earn a 6% return by investing
in their own shares.
The current investment budget that Bethany and the executive
committee have to plan with is limited at R100,000 for local
investments. While Bethany may choose to use the budget to invest
in one or more of the many investment proposals that WorkWizard is
inundated with, she also has the option to invest the money in
other investment assets, such as shares, bonds, or an alternative
asset class.
Question 1
1.1 If Bethany chooses to reinvest the R100,000 local investment
budget (at an internal rate of return of 6%) into purchasing shares
in the company, calculate the FV of WorkWizard’s R100,000
investment, over a five-year period. (Max. 5 lines.)
1.2 If Bethany chooses to forego all investments, in favour of
receiving a R100,000 cash inflow from one of WorkWizard’s external
investors five years from now, what would the PV of that external
investment (R100,000) be? (Max. 5 lines.)
Question 2
If you were the CEO of WorkWizard, which of the three investment
options outlined in the case study would you choose to invest the
R100,000 investment budget in? Your answer should include
calculations around the net present value (NPV) of each investment,
as well as a recommendation on whether or not to invest based on
each option’s NPV and the allocated investment budget. Please note,
this question is separate from Question 1. (Max. 30 lines.)