MAC3761 Test 4
15 September 2023
(a) Classification of the Three Projects:
1. Gazehound Bus Services (GBS) Capital Project:
• Classification: This project is a Capital Expenditure Project.
• Explanation: A capital expenditure project involves investments in long-term assets,
such as property, plant, and equipment. In this case, Bigvest is considering
purchasing a fleet of buses from the liquidated GBS, which is a long-term asset.
2. Zola Budd Capital Project:
• Classification: This project is also a Capital Expenditure Project.
• Explanation: Similar to the GBS project, the Zola Budd project involves the
acquisition of a fleet of brand-new minibuses. This investment in tangible assets for
long-term use falls under capital expenditure.
3. Bathu (Pty) Ltd Project:
• Classification: This project is an Equity Investment Project or Acquisition.
• Explanation: The Bathu project involves acquiring a 30% stake in Bathu (Pty) Ltd.
Instead of investing in physical assets, Bigvest is acquiring ownership in another
company, which makes it an equity investment project. This type of project aims to
gain ownership and control over another entity. The GBS and Zola Budd projects
involve capital expenditure, where Bigvest is investing in tangible assets, while the
Bathu project is an equity investment where Bigvest aims to acquire a share of
another company.
b) NPV for the Zola Budd Project:
1. Initial Investment:
• Cost of purchasing the fleet of minibuses = R230 million
• Cost of developing the App = R4.6 million
• IT specialist's annual salary = R740,000 per year
• Permit registration and other fees = R290,000
• Total Initial Investment = R230,000,000 + R4,600,000 + R740,000 + R290,000 =
R235,630,000
15 September 2023
(a) Classification of the Three Projects:
1. Gazehound Bus Services (GBS) Capital Project:
• Classification: This project is a Capital Expenditure Project.
• Explanation: A capital expenditure project involves investments in long-term assets,
such as property, plant, and equipment. In this case, Bigvest is considering
purchasing a fleet of buses from the liquidated GBS, which is a long-term asset.
2. Zola Budd Capital Project:
• Classification: This project is also a Capital Expenditure Project.
• Explanation: Similar to the GBS project, the Zola Budd project involves the
acquisition of a fleet of brand-new minibuses. This investment in tangible assets for
long-term use falls under capital expenditure.
3. Bathu (Pty) Ltd Project:
• Classification: This project is an Equity Investment Project or Acquisition.
• Explanation: The Bathu project involves acquiring a 30% stake in Bathu (Pty) Ltd.
Instead of investing in physical assets, Bigvest is acquiring ownership in another
company, which makes it an equity investment project. This type of project aims to
gain ownership and control over another entity. The GBS and Zola Budd projects
involve capital expenditure, where Bigvest is investing in tangible assets, while the
Bathu project is an equity investment where Bigvest aims to acquire a share of
another company.
b) NPV for the Zola Budd Project:
1. Initial Investment:
• Cost of purchasing the fleet of minibuses = R230 million
• Cost of developing the App = R4.6 million
• IT specialist's annual salary = R740,000 per year
• Permit registration and other fees = R290,000
• Total Initial Investment = R230,000,000 + R4,600,000 + R740,000 + R290,000 =
R235,630,000
