Question: Sony Ltd is considering investing in a new gaming console project with the following forecasted details: Initial amount invested is R1,800,000 and expected residual value

Sony Ltd is considering investing in a new gaming console project with the following forecasted details: Initial amount invested is R1,800,000 and expected residual value is R130,000.

Year

Cashflows

Discount factor

Year 1

R450,000

0.909

Year 2

R460,000

0.826

Year 3

R470,000

0.751

Year 4

R480,000

0.683

Year 5

R490,000

0.621

Assuming that the cost of capital for the company is 9%. The cash flows are after tax and depreciation is charged at R130,000 per year. Tax rate is 27%.

Required:

  1. Calculate each of the following: 1.1.1. Accounting Rate of Return (5) 1.1.2. Net Present Value (NPV) (10)

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