Medico Limited intends investing in a project during March 2021. The project is expected to cost R2
Question:
Medico Limited intends investing in a project during March 2021.
The project is expected to cost R2 500 000 with a five-year useful life, and no residual value.
The annual volume of production for the project is estimated at 150 000 units, which can be sold for cash at R12 per unit.
Depreciation is expected to be R500 000 per year.
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Variable costs | R225 000 | ||||||||||||||
Fixed costs | R750 000 |
REQUIRED
Use the information provided above to calculate the following:
1. Net Present Value
2. Accounting Rate of Return on average investment.
3. Internal Rate of Return, if the net cash flows are R720 000 per year for five years.
Medico Limited is in the process of planning for the 2021 financial year. The company manufactures only one product, viz. Product Med. Your assistance is required in the preparation of budgets and undertaking other calculations.