INFORMATION

The following information relates to two projects under consideration by CRMP Limited:

Project X Project Y

Initial cost R$1555000$ R$1550000$

Expected life $7$ years $7$ years

Expected scrap value $00$

Expected net cash flows: R R

End of year $1450000420000$

$2420000420000$

$3400000420000$

$4200000420000$

$5180000420000$

$6350000420000$

$7450000420000$

The company estimates that its cost of capital is $13\%.$

REQUIRED

Study the information provided below and answer the following questions:

$2\mathrm{.}1$ 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?

$(7$ Marks$)$

$2\mathrm{.}2$ Calculate the Accounting Rate of Return for both projects $($answer expressed to two decimal places$).(6$ Marks$)$

$2\mathrm{.}3$ Calculate the Net Present Value for both projects. $($Round off amounts to the nearest Rand.$)(6$ Marks$)$

$2\mathrm{.}4$ Based on your calculations from $2\mathrm{.}12\mathrm{.}3,$ which project should CRMP Limited choose? Why? $(2$ Marks$)$

$2\mathrm{.}5$ 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.