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 (expressed in years, months and days). 5.2 Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). 5.3 Calculate the Benefit Cost Ratio of both projects (expressed to two 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 (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. 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 R100 000 0 Depreciation per year R160 000 R180 000 Expected net profit: R R End of year 1 100 000 90 000 2 140 000 90 000 3 150 000 90 000 4 120 000 90 000 5 50 000 90 000 The company estimates that its cost of capital is 12%. Ignore taxes.APPENDIX 1 1 1 Present value of R1: PVFA (k,n) = (1 + K )n 1 - (1 + K )n k Number of 1% 3% 8%% 90% 10% 1 1% 12% 13% 14% 13% 16% 17% 1 89% Periods 19% 20% 25% 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 U.9803 0.8621 0.9612 0.8547 0.8475 0.8403 0.9426 0.9246 0.8333 0.9070 0.8900 0.8000 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.9706 0.9423 0.7182 0.7062 0.9151 0.8890 0.6944 0.6400 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.71 18 0.6931 4 0.6750 0.6575 0.6407 0.6244 0.9610 0.9238 0.6086 0.5934 0.8885 0.8548 0.5787 0.5120 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0-6355 0.6133 |0.5921 0.5718 0.5523 0.5337 05158 0.9515 0.4987 0.4823 0.9057 0.4096 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019 1.3277 6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 7 0.4104 0.3898 0.9327 0.3704 0.3521 0.8706 0.3349 0.2621 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.9235 0.3332 0.3139 0.2959 0.8535 0.7894 0.7307 0.2791 0.2097 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.9143 0.3050 0.8368 0.2848 0.2660 0.7664 0.2487 0.7026 0.6446 0.2326 0.1678 0.3919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.9053 0.2255 |0.8203 | 0.7441 0.2090 |0.6756 | 0.6139 0.1938 0.1342 | 0.5584 | 0.5083 0.4632 |0.4224 |0.3855 | 0.3522 0 3220 | 0.2946 0.2697 0.2472 |0.2267 (0 2080 | 01911 0.1756 0.1615 0.1074 11 0.8963 0.8043 0.7224 0.6496 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505 12 0.3173 0.2875 0.2607 0.2366 0.2149 0.8874 0.1954 |0.7885 |0.7014 0.1778 0.1619 0.6246 0.1476 0.5568 0.1346 0.0859 0.4970 0.4440 0.3971 0.3535 0.3186 0.2858 0.2567 0.2307 0.2076 13 0.1869 0.1685 0.1520 0.1372 0.1240 0.8787 0.1122 0.7730 020687 0.6810 |0.6006 | 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897 0.2575 0.2292 0.2042 0.1821 14 0.1625 0.1452 0.1299 0.8700 0.1163 |0.7579 0.1042 0.0935 0.0530 0.6611 0.5775 0.3051 0.4423 0.3878 0.3405 0.2992 0.2633 0.2320 0.2046 0.1807 0.1597 0.1413 0.1252 0.8613 0.7430 |0.6419 01110 010985 0.0876 0.0779 0.5553 |0.4810 0.0440 0.4173 0.3624 0.3152 0.2745 |0.2394 0.2090 0.1827 0.1599 0.1401 0.1229 0.1079 0.0949 010835 0.0736 0.0649 0.0352 16 0.8528 0.7284 0.6232 0.5339 |0.4581 0.3936 | 0.3387 0.2919 0.2519 0.2176 |0.1883 0.1631 | 0.1415 0.1229 | 0.1069 0.0930 17 01081 1 0.8444 0.7142 0 0708 0.0618 0.6050 0.0541 0.5134 0.0281 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 0.1696 0.1456 0.1252 0.1078 0.0929 010802 18 0.0693 010600 0.8360 0.0520 0.0451 0.7002 0.5874 0.0225 0.4936 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799 0.1528 0.1300 0.1108 0.0946 0.0808 19 0.069 0.0592 0.0508 0.8277 0.0437 0.6864 0.5703 0.0376 0.01 80 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 20 0.1377 0.1161 0.0981 0.0829 0.0703 0.8195 0.0596 020506 0.6730 0.0431 0.5537 0.0367 0.4564 0.3769 0.0313 0.0144 0_3118 0.2584 0.2145 |0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.061 1 0.0514 0.0433 020365 0.0308 0.0261 0.0115 25 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 |0.1160 | 0.0923 0.0736 | 0.0583 0.0471 0.0378 0.0304 0.0245 30 0.7419 |0.5521 0.0197 0.0160 | 0.0129 | 0.0105 0.4120 0.3083 0.0038 |0.2314 |0.1741 0.1314 0.0994 0.0754 |0.0573 |0.0437 0.0334 0.0256 40 0.0196 0.0151 0.6717 0.4529 0.3066 0.0116 0.0090 |0.0070 0.0054 0.2083 0.1420 0.0972 0.0668 |0.0042 0.0012 0.0460 | 0.0318 0.0221 0.0154 0.0107 0.0075 |0.0053 50 0.0037 0.0026 0.0019 010013 | 0.0010 0.6080 0.3715 0.2281 |0.0007 0.1407 0.00 0 1 0.0872 0.0543 0.0339 0.0213 0.0134 0.0085 0.0054 0.0035 0.0022 0.0014 0.0009 0.3504 0.00 06 020004 010003 0.3048 0.1697 0.0002 0.00 0 1 0.0951 0.0535 0.0303 0.0173 0.0099 0.0057 0.0033 0.0019 0.001 1 0.0007 0.0004 0.0002 0.00 0 1 0.00 01APPENDIX 2 Present value of a regular annuity of RI per period for n periods : PVFA (4,/) = 1 TM: (1+k )i Number of 19% 3% 5% 6%% 7% 8% 10% 11% 12% Periods 13% 14% 15% 16% 17% 18% 20% 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 2 0.8850 1.9704 0.8772 1.9416 1.9135 0.8696 0.8621 0.8547 1.8861 1.8594 0.8475 0.8403 1.8334 0.8333 3 1.8080 1.7833 1.7591 2.9410 1.7353 1.7125 2.8839 1.6901 1.6681 2.8286 2.7751 1.6467 1.6257 2.7232 1.6052 2.6730 1.5852 2.6243 1.5656 1.5465 2.5313 1.5278 4 2.5771 2.4869 2.4437 2.4018 2.3612 3.9020 2.3216 3.8077 2.2832 2.2459 3.7171 3.6299 2.2096 2.1743 1.5460 2.1065 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 310373 2.9745 4.8534 4.7135 2.9137 4.5797 2.8350 2.7982 1.4518 2.7432 4.3295 2.6901 .2124 2.6386 2.3887 4.1002 319927 3.8897 3.7908 3.6939 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 310576 2.9906 6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 41114 3.9975 3.8887 6.7282 6.4720 3.7845 6.2303 3.6847 6.0021 5.7864 3.5892 3.4976 5.5824 3.4098 3.3255 5.3893 5.2064 5.0330 4.8684 4.7122 8 4.5638 4.4226 76517 4.2883 7.3255 7.0197 4.1604 4.0386 3.9224 6.7327 6.4632 3.8115 6.2098 5.9713 3.7057 3.6046 5.7466 5.5348 5.3349 5.1461 9 4.9676 1.7988 8.5660 8.1622 4.6389 4.4873 4.3436 4.2072 10 7.7861 7.4353 7.1078 4.0776 3.9544 6.8017 6.5152 3.8372 6.2469 5.9952 5.7590 9.4713 5.5370 5.3282 8.9826 8.5302 5.1317 4.9464 8.1109 4.7716 7.7217 73601 4.6065 4.4506 1.0236 4.3038 6.7101 4.1633 4.0310 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 3.0188 4.8332 | 4.6586 4.4941 4.3389 4.1925 11 10.3676 9.7868 9.2526 8.7605 8.3064 7 8869 .4987 7-1390 6.8052 6.4951 6.2065 5.9377 5.6869 12 11.2551 10.5753 5.4527 9.9540 5.2337 9.3851 50286 | 4.8364 8.8633 4.6560 4.4865 3.3838 7.9427 4.3271 13 7.5361 7.1607 6.8137 12.1337 11.3484 10.6350 6.4924 6.1944 5.9176 9.9856 5.6603 9.3936 5.4206 8.8527 8.3577 5.1971 4.9884 4.7932 1.9038 4.4392 7.4869 7.1034 13.0037 12.1062 6.7499 6.4235 6.1218 5.8424 11.2961 5.5831 10.5631 53423 5.1183 9.8986 4.9095 9.2950 8. 7435 4.7147 3.2442 4.5327 .7862 7.3667 6.9819 13.8651 12.8493 6.6282 6.3025 11.9379 6.0021 5.7245 11.1184 5.4675 5.2293 10.3797 9.7122 9.1079 35595 ] 4.6106 8.0607 7.6061 7.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.3242 5.0916 4 8759 4.6755 16 14.7179 13.3777 12.5611 11.6523 10.8378 10.1059 9.4466 3.8514 17 8.3126 7.8237 15.5623 14.2919 13.1661 7.3792 6.9740 6.6039 6.2651 3.9542 5.6685 5.4053 5.1624 12.1657 11.2741 10.4773 4.9377 4.7296 9.7632 9.1216 18 8.5436 8.0216 7.5488 16.3983 14.9920 7.1196 13.7535 6.7291 12.6593 63729 6.0472 11.6896 5.7487 | 5.4746 10.8276 5.2223 4.9897 10.059 9.3719 19 8.7556 8.2014 17.2260 7.7016 7.2497 15.6785 6.8399 14.3238 6.4674 6.1280 13.1339 18178 12.0853 5.5339 11.1581 5.2732 10333 10.3356 9.6036 4.812 20 8.9501 8.3649 7.8393 18.0456 7.3658 6.9380 16.3514 6.5504 13.5903 6.1982 12.4622 5.8775 5.5845 5.3162 11.4699 50700 4.8435 9 8181 9.1285 8.5136 7.9633 1.4694 7.0248 6.6231 6.2593 5.92RR 5.6278 5.3527 5.1009 4.8696 25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 30 9.8226 9.0770 8.4217 25.8077 7 8431 7.3300 22.3965 6.8729 6.4641 19.6004 17.2920 6.0971 5.7662 5.4669 15.3725 13.7648 5_1951 | 4.9476 12.4090 11.2578 40 10.2737 9.4269 32.8347 8.6938 8.0552 7.4957 7.0027 23.1148 6.5660 17.1591 6.1772 5.8294 15.0463 5.5168 5.2347 4.9789 50 11.9246 10.7574 9.7791 8.9511 39.1961 31.4236 25.7298 21.4822 8.2438 7.6344 7.1050 18.2559 15 7619 13.8007 6.6418 6.2335 5.871 5.5482 5.2582 4.9966 12 2335 10.9617 9.9148 9.0417 8 3045 7.6752 44.9550 34.7609 27.6756 22.6235 7.1327 6.6605 6.2463 5.8801 18.9293 16.1614 14.0392 5.5541 5.2623 | 4.9995 123766 11.0480 9.9672 9.0736 8 3240 7.6873 7.1401 6.6651 6.2402 5.8819 5.5353 5.2630 4.9999