QUESTION 5 (20 Marks) Note: Where discount factors are required, use only the present value tables...

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QUESTION 5 (20 Marks) Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after QUESTION 5. REQUIRED Study the information provided below and calculate the following: 5.1 Payback Period of both projects (expressed in years, months and days). (6 marks) 5.2 Accounting Rate of Return on average investment of Project A (expressed to two decimal places). (3 marks) 5.3 Net Present Value of both projects. Your answer must include the calculations of the present values and NPV. (6 marks) 5.4 Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION The following information relates to two capital investment projects that are under consideration by Alpha Limited. Initial cost Expected life Scrap value Expected net profit: Year 1 Year 2 Year 3 Year 4 Year 5 Project A Project B R600 000 R600 000 5 years 5 years 0 0 R R 80 000 70 000 70 000 70 000 60 000 70 000 50 000 70 000 40 000 70 000 The company estimates that its cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes. QUESTION 5 (20 Marks) Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after QUESTION 5. REQUIRED Study the information provided below and calculate the following: 5.1 Payback Period of both projects (expressed in years, months and days). (6 marks) 5.2 Accounting Rate of Return on average investment of Project A (expressed to two decimal places). (3 marks) 5.3 Net Present Value of both projects. Your answer must include the calculations of the present values and NPV. (6 marks) 5.4 Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION The following information relates to two capital investment projects that are under consideration by Alpha Limited. Initial cost Expected life Scrap value Expected net profit: Year 1 Year 2 Year 3 Year 4 Year 5 Project A Project B R600 000 R600 000 5 years 5 years 0 0 R R 80 000 70 000 70 000 70 000 60 000 70 000 50 000 70 000 40 000 70 000 The company estimates that its cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes.