The following information relates to two projects under consideration by CRMP Limited: Initial cost Expected life...

 

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The following information relates to two projects under consideration by CRMP Limited: Initial cost Expected life Expected scrap value Expected net cash flows: End of year 1 2 3 4 5 6 7 The company estimates that its cost of capital is 13%. Project X R1 555 000 7 years 0 R 450 000 420 000 400 000 200 000 180 000 350 000 450 000 Project Y R1 550 000 7 years 0 R 420 000 420 000 420 000 420 000 420 000 420 000 420 000 REQUIRED Study the information provided below and answer the following questions: 2.1 Calculate the Payback Period of both projects (answers expressed in years, months and days.) Which project would you choose on the basis of payback period? Why? 2.2 Calculate the Accounting Rate of Return for both projects (answer expressed to two decimal places). 2.3 Calculate the Net Present Value for both projects. (Round off amounts to the nearest Rand.) 2.4 Based on your calculations from 2.1-2.3, which project should CRMP Limited choose? Why? 2.5 Explain the concept of the "Internal Rate of Return (IRR)" in the context of financial decision-making. Describe the significance of IRR when evaluating investment projects. The following information relates to two projects under consideration by CRMP Limited: Initial cost Expected life Expected scrap value Expected net cash flows: End of year 1 2 3 4 5 6 7 The company estimates that its cost of capital is 13%. Project X R1 555 000 7 years 0 R 450 000 420 000 400 000 200 000 180 000 350 000 450 000 Project Y R1 550 000 7 years 0 R 420 000 420 000 420 000 420 000 420 000 420 000 420 000 REQUIRED Study the information provided below and answer the following questions: 2.1 Calculate the Payback Period of both projects (answers expressed in years, months and days.) Which project would you choose on the basis of payback period? Why? 2.2 Calculate the Accounting Rate of Return for both projects (answer expressed to two decimal places). 2.3 Calculate the Net Present Value for both projects. (Round off amounts to the nearest Rand.) 2.4 Based on your calculations from 2.1-2.3, which project should CRMP Limited choose? Why? 2.5 Explain the concept of the "Internal Rate of Return (IRR)" in the context of financial decision-making. Describe the significance of IRR when evaluating investment projects.

Answer rating: 100% (QA)

Solution 21 Payback Period Project X Year 1 450000 1550000 029 years Year 2 420000 1550000 027 years Year 3 400000 1550000 026 years Year 4 200000 155... View the full answer