Answer the questions from the information provided. Study the information given below and answer the following questions:

4.1Calculate the Payback Period of Project B (expressed in years, months and days). (3 marks)

4.1.1Calculate the Accounting Rate of Return on initial investment of Project A (expressed to two decimal places).(4 marks)

4.1.2Calculate the Net Present Value (NPV) of both projects. (6 marks)

4.1.3 Based on the NPV, which project should be chosen? Why? (1 marks)

INFORMATION The following data relate to two investment projects, only one of which may be selected: Project A Project B R R Initial capital expenditure 1 400 000 1 400 000 Net profit per year:

Year 1 670 000 270 000 Year 2 540 000 280 000 Year 3 410 000 650 000 Year 4 270 000 710 000 Expected scrap value 400 000 0

Note: The straight-line method of depreciation is used. The cost of capital is 15%. Ignore taxes.

4.2 Use the information provided below to answer the following questions:

4.2.1 Calculate the Internal Rate of Return (expressed to two decimal places) using interpolation.

4.2.2 Should the machine be purchased? Why?

INFORMATION Leo Limited has identified a new machine that it is considering for purchase. The machine would cost R600 000 and a further amount of R100 000 is payable for its installation. The machine is estimated to have a useful life of five years. At the end of five years, the machine would be donated. It is expected that the new machine would generate cash revenues of R450 000 per year, and its cash operating expenses would total R250 000 per year. The cost of capital is 15%.