Mr. Mwangi is considering undertaking a 5year project which will be used to convert saw dust into animal feeds. The project is expected to generate the following sales revenue:
Year Sales Revenue in Shs '000'
1 750
2 780
3 700
4 900
5 950
The project will require an initial cash outlay of Shs. IM an annual operating expenses of Shs. 300,000 p.a. The project will have a Salvage value of 200,000 at the end of its Economic Life. The company Uses Straight line Method of depreciation of all its new projects. The Tax rate is 40% and the cost of Capital is 12%.
Required:
Evaluate the project using the following evaluation Techniques:
i. The Payback Period
ii. Accounting rate of return
iii. The Net present value
iv. The profitability index
V. The internal rate of return.