Leo $($Pty$)$ Ltd is considering two possible projects, D & E$.$ The projects are mutually exclusive, which

means only one of them can be chosen. The following net profits to the projects:

The cost of Capital is $30\%.$

Required:

$3\mathrm{.}1$ You are required calculate the accounting rate of return $($ARR$)$ for both project D and E $.$

QUESTION $4$

$(30$ Marks$)$

$4\mathrm{.}1$ You would like to buy a house that is currently on the market at R$85,000,$ but you cannot afford it

right now. However, you think that you would be able to buy it after $4$ years. If the expected inflation rate

as applied to the price of this house is $6\%$ per year, what is its expected price after four years?

$4\mathrm{.}2$ Jack has deposited R$6,000$ in a money market account with a variable interest rate. The account

compounds the interest monthly. Jack expects the interest rate to remain at $8\%$ annually for the first $3$

months, at $9\%$ annually for the next $3$ months, and then back to $8\%$ annually for the next $3$ months. Find

the total amount in this account after $9$ months.

The annual interest rates are $8\%$ and $9\%,$ or $\mathrm{.}08$ and $\mathrm{.}09.$ They correspond to monthly rates at $\frac{0\mathrm{.}08}{12}$ and

$\frac{0\mathrm{.}09}{12}.$ We compound the growth for the nine months as

$4\mathrm{.}3$ You decide to put R$12,000$ in a money market fund that pays interest at the annual rate of $8\mathrm{.}4\%,$

compounding it monthly.

You plan to take the money out after one year and pay the income tax on the interest earned. You are in

the $15\%$ tax bracket. Find the total amount available to you after taxes.

$4\mathrm{.}4$ You expect to receive R$10,000$ as a bonus after $5$ years on the job. You have calculated the present

value of this bonus and the answer is R$8000.$ What discount rate did you use in your calculation?