Question: Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. REQUIRED Study the information given below
Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. REQUIRED Study the information given below and answer the following questions: 5.1 Calculate the Payback Period of Project A. (Answer must be expressed in years, months and days. 5.2 Calculate the Accounting Rate of Return of Project A. (Answer must be rounded off to two decimal places. 5.3 Calculate the Benefit Cost Ratio of both projects. (Answers must be expressed to 3 decimal places. 5.4 Refer to yours answers in question 5.3. Which project should be chosen? Why? 5.5 Calculate the Internal Rate of Return of Project B. INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be chosen.
| PROJECT A | PROJECT B | |
| Initial cost | R900 000 | R900 000 |
| Expected useful life | 5 Years | 5 Years |
| Expected scrap value (not included in figures below) | R100 000 | 0 |
| Depreciation year | R160 000 | R180 000 |
| Expected net cash flow | R | R |
| End of year 1 | 260 000 | 270 000 |
| 2 | 300 000 | 270 000 |
| 3 | 310 000 | 270 000 |
| 4 | 280 000 | 270 000 |
| 5 | 210 000 | 270 000 |
The company estimates that its cost of capital is 12%
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