Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after QUESTION 5. REQUIRED Study the information provided below and calculate the following: 5.1 Payback Period of both projects (expressed in years, months and days). (6 marks) 5.2 Accounting Rate of Return on average investment of Project A (expressed to two decimal places). (3 marks) 5.3 Net Present Value of both projects. Your answer must include the calculations of the present values and NPV. (6 marks) 5.4 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. (5 marks) INFORMATION The following information relates to two capital investment projects that are under consideration by Alpha Limited. Initial cost Expected life Scrap value Expected net profit: Year 1 Year 2 Year 3 Year 4 Year 5 Project A R600 000 Project B R600 000 5 years 5 years 0 0 R R 80 000 70 000 70 000 70 000 60 000 70 000 50 000 70 000 40 000 70 000 The company estimates that its cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes. Table 1: Present value of R1 APPENDIX 1 Number of 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% Periods 0.9901 0.9804 0.9709 0.9615 0.9524 2 3 4 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 0.8000 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944 0.6400 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787 0.5120 0.9610 0.9238 0.8885 0.8548 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 0.5158 0.4987 0.4823 0.4096 0.9515 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019 0.3277 6 7 8 0.7307 0.6768 9 10 0.7026 0.6446 0.6756 0.6139 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 0.4104 0.3898 0.9327 0.8706 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 0.3332 0.9235 0.8535 0.7894 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.9143 0.8368 0.7664 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.9053 0.8203 0.7441 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 II 0.8963 0.8043 0.7224 0.6496 0.5847 12 0.8874 0.7885 13 14 15 0.5268 0.4751 0.4289 0.3875 0.3505 0.3173 0.2875 0.2607 0.7014 0.6246 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186 0.2858 0.2567 0.2307 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 0.4150 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3405 0.8613 0.7430 0.6419 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938 0.1342 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615 0.1074 0.2366 0.2149 0.1954 0.1778 0.1619 0.1476 0.1346 0.0859 0.2076 0.1869 0.1685 0.1520 0.1372 0.1240 0.1122 0.0687 0.3677 0.3262 0.2897 0.2575 0.2292 0.2042 0.1821 0.1625 0.1452 0.1299 0.1163 0.1042 0.0935 0.0550 0.2992 0.2633 0.2320 0.2046 0.1807 0.1597 0.1413 0.1252 0.1110 0.0985 0.0876 0.0779 0.0440 0.2394 0.2090 0.1827 0.1599 0.1401 0.1229 0.1079 0.0949 0.0835 0.0736 0.0649 0.0352 0.3704 0.3521 0.3349 0.2621 0.3139 0.2959 0.2791 0.2097 0.2660 0.2487 0.2326 0.1678 16 17 0.8528 0.7284 0.6232 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.8444 0.7142 0.6050 18 0.8360 0.7002 0.5874 19 20 0.2176 0.1883 0.1631 0.1415 0.1229 0.1069 0.0930 0.0811 0.0708 0.0618 0.0541 0.0281 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 0.1696 0.1456 0.1252 0.1078 0.0929 0.0802 0.0693 0.0600 0.0520 0.0451 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 0.0691 0.0592 0.0508 0.0437 0.0376 0.0180 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 0.1377 0.1161 0.0981 0.0829 0.0703 0.0596 0.0506 0.0431 0.0367 0.0313 0.0144 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.0611 0.0514 0.0433 0.0365 0.0308 0.0261 0.0115 25 30 40 50 60 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923 0.0736 0.0588 0.7419 0.5521 0.4120 0.3083 0.2314 0.1741 0.1314 0.0994 0.0754 0.0573 0.0437 0.0334 0.0256 0.6717 0.4529 0.3066 0.2083 0.1420 0.0972 0.0668 0.0460 0.0318 0.0221 0.0154 0.0107 0.0075 0.6080 0.3715 0.2281 0.1407 0.0872 0.0543 0.0339 0.0213 0.0134 0.0085 0.0054 0.0035 0.0022 0.5504 0.3048 0.1697 0.0951 0.0535 0.0303 0.0173 0.0099 0.0057 0.0033 0.0019 0.0011 0.0007 0.0471 0.0378 0.0304 0.0245 0.0197 0.0160 0.0129 0.0105 0.0038 0.0196 0.0151 0.0116 0.0090 0.0070 0.0054 0.0042 0.0012 0.0053 0.0037 0.0026 0.0019 0.0013 0.0010 0.0007 0.0001 0.0014 0.0009 0.0006 0.0004 0.0003 0.0002 0.0001 0.0004 0.0002 0.0001 0.0001 * APPENDIX 2 Table 2: Present value of a regular annuity of R1 per period for n periods Number of 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Periods 1 2 3 4 5 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465 1.5278 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399 2.1065 3.2397 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386 2.5887 3.8897 3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906 6 7 8 9 10 5.7955 5.6014 5.4172 5.2421 6.7282 6.4720 6.2303 6.0021 7.6517 7.3255 7.0197 6.7327 8.5660 8.1622 7.7861 7.4353 9.4713 8.9826 8.5302 8.1109 5.0757 4.9173 4.7665 4.6229 5.7864 5.5824 5.3893 5.2064 6.4632 6.2098 5.9713 5.7466 7.1078 6.8017 6.5152 6.2469 7.7217 7.3601 7.0236 6.7101 4.4859 4.3553 4.2305 4.1114 3.9975 38887 5.0330 4.8684 4.7122 4.5638 4.4226 4 2883 5.5348 5.3349 5.1461 4.9676 4.7988 4.6389 5.9952 5.7590 5.5370 5.3282 5.1317 4.9464 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 11 12 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.1390 13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.5361 7.9038 14 15 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.2442 8.5595 3.7845 3.6847 3.5892 3.4976 3.4098 3.3255 4.1604 4.0386 3.9224 3.8115 3.7057 3.6046 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372 4.7716 4.6065 4.4506 4.3038 4.1633 4.0310 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925 6.8052 6.4951 6.2065 5.9377 5.6869 5.4527 5.2337 5.0286 4.8364 4.6560 4.4865 4.3271 7.1607 6.8137 6.4924 6.1944 5.9176 5.6603 5.4206 5.1971 4.9884 4.7932 4.6105 4.4392 7.4869 7.1034 6.7499 6.4235 6.1218 5.8424 5.5831 5.3423 5.1183 4.9095 4.7147 4.5327 7.7862 7.3667 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.2293 5.0081 4.8023 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 13.5777 12.5611 11.6523 10,8378 10.1059 9.4466 17 18 19 20 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.8514 8.3126 7.8237 7.3792 6.9740 6.6039 6.2651 5.9542 5.6685 5.4053 5.1624 4.9377 4.7296 9.7632 9.1216 8.5436 8.0216 7.5488 7.1196 6.7291 6.3729 6.0472 5.7487 5.4746 5.2223 4.9897 9.3719 9.6036 4.7746 8.7556 8.2014 7.7016 7.2497 6.8399 6.4674 6.1280 5.8178 5.5339 5.2732 5.0333 4.8122 8.9501 8.3649 7.8393 7.3658 6.9380 6.5504 6.1982 5.8775 5.5845 5.3162 5.0700 4.8435 9.1285 8.5136 7.9633 7.4694 7.0248 6.6231 6.2593 5.9288 5.6278 5.3527 5.1009 4.8696 25 30 40 50 60 44.9550 34.7609 27.6756 | 22.6235 | 18.9293 | 16.1614 14.0392 | 12.3766 | 11.0480 9.9672 | 9.0736 | 8.3240 | 7.6873 | 7.1401 39.1961 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335 10.9617 9.9148 9.0417 8.3045 7.6752 7.1327 6.6605 6.2463 6.6651 | 6.2402 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 9.0770 8.4217 7.8431 7.3300 6.8729 6.4641 6.0971 5.7662 5.4669 5.1951 4.9476 25.8077 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737 9.4269 8.6938 8.0552 7.4957 7.0027 6.5660 6.1772 5.8294 5.5168 5.2347 4.9789 32.8347 27.3555 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574 9.7791 8.9511 8.2438 7.6344 7.1050 6.6418 6.2335 5.8713 5.5482 5.2582 4.9966 5.8801 5.5541 5.2623 4.9995 5.8819 5.5553 5.2630 4.9999