Sherwood Limited is an American based manufacturer of heavy-duty equipment. The company is currently investigating two projects for expansion. It can only undertake one of them and has asked your advice in deciding which one to proceed with. Project Bella: Production at the existing factory could be expanded. The cost of the new plant for this option would be an initial outlay of $121000000. This would result in an additional \$12 200000 profit being earned in each of the 6 years that the project would last. The new plant to be fully depreciated over the 6 years, on a straight-line basis, in accordance with the company's accounting policy. The financial team has also determined that the new plant must bear its share of the existing overheads and that amounted to $320000 per annum. These expenses were also included in the profit calculation. Consultant fees cost $10000. Project Bow: Production could be increased by purchasing a new manufacturing facility in South Africa. The cost of the facility would be an initial outlay of R320 000000 . Annual sales for the 6-year period are expected to be R92000 000 , and fixed and variable cost of R13 million and R3 million respectively. Depreciation is calculated using the straight-line method. Consultants' fees are expected to be R1 250000. Additional information: The South African inflation is expected to exceed the American inflation by 2% throughout the life of the project. Sherwood Limited's cost of capital is currently 9%. * The current spot exchange rate is R16.44/S. 4.1 Advise Shenwood Limited which project they should undertake, showing your calculations and (22 marks) assumptions to support your advice 4.2 Advise Sherwood Limited if it is worth investing in neither, in one or in both of these projects (3 marks)

To compare the two projects, we need to calculate the net present value (NPV) for each project. The NPV measures the difference between the present value of cash inflows and outflows. Using the cost of capital of 9%, we discount the future cash flows for each project and subtract the initial outlay.

For Project Bella, the additional profit of $12,200,000 per year for 6 years needs to be discounted to present value using the cost of capital. The depreciation expense and the allocated overhead expenses are also considered. The consultant fees are not included in the cash flow calculation since they are a one-time expense. By calculating the NPV for Project Bella, we can determine its profitability.

For Project Bow, the sales revenue of R92,000,000 per year for 6 years needs to be discounted to present value, considering the exchange rate and the expected inflation rate difference. The fixed and variable costs, depreciation, allocated overhead expenses, and consultant fees are also taken into account. Again, by calculating the NPV, we can assess the profitability of Project Bow.

Based on the calculations and comparison of the NPVs, the project with the higher positive NPV should be chosen. If both projects have positive NPVs, it may be worth considering undertaking both projects if the company's resources allow for it. However, without specific information about the NPVs and other factors, a definitive recommendation cannot be made.

To learn more about exchange rates visit:

brainly.com/question/10187894

#SPJ11