QUESTION 3 Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2...

  

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QUESTION 3 Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after question 5. REQUIRED Use the information provided below to answer the following questions: 3.1 3.2 Calculate the Payback Period of Project B (answer expressed in years, months and days). Calculate the Accounting Rate of Return (on average investment) of Project A (answer expressed to two decimal places). Calculate the Benefit Cost Ratio of both projects (answers expressed to three decimal places). Refer to your answers in question 3.3. Which project should be chosen? Why? Calculate the Internal Rate of Return of Project A, assuming that it has no scrap value (answer expressed to two decimal places). 3.3 3.4 3.5 Initial cost Scrap value Annual net profit: Year 1 Year 2 Year 3 Year 4 Year 5 INFORMATION Mellou Limited has the option to invest in Project A or Project B, since finance is only available to invest in one of them. You are given the following projected data: Additional information 1. Depreciation is calculated using the straight-line basis. 2. The discount rate used by the company is 12%. (20 Marks) Project A R 500 000 20 000 34 000 44 000 64 000 74 000 14 000 Project B R 500 000 0 (3 marks) 40 000 40 000 40 000 40 000 40 000 (5 marks) (6 marks) (1 mark) (5 marks) QUESTION 3 Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after question 5. REQUIRED Use the information provided below to answer the following questions: 3.1 3.2 Calculate the Payback Period of Project B (answer expressed in years, months and days). Calculate the Accounting Rate of Return (on average investment) of Project A (answer expressed to two decimal places). Calculate the Benefit Cost Ratio of both projects (answers expressed to three decimal places). Refer to your answers in question 3.3. Which project should be chosen? Why? Calculate the Internal Rate of Return of Project A, assuming that it has no scrap value (answer expressed to two decimal places). 3.3 3.4 3.5 Initial cost Scrap value Annual net profit: Year 1 Year 2 Year 3 Year 4 Year 5 INFORMATION Mellou Limited has the option to invest in Project A or Project B, since finance is only available to invest in one of them. You are given the following projected data: Additional information 1. Depreciation is calculated using the straight-line basis. 2. The discount rate used by the company is 12%. (20 Marks) Project A R 500 000 20 000 34 000 44 000 64 000 74 000 14 000 Project B R 500 000 0 (3 marks) 40 000 40 000 40 000 40 000 40 000 (5 marks) (6 marks) (1 mark) (5 marks)

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