Please Help - Submission in 4 Hours - Thank you Loads.

QUESTION 5 (20 Marks)

Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after QUESTION 5.

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

	Project A	Project B
Initial Cost	600 000	600 0000
Expected Life	5 Years	5 Years
Scrap Value	0	0
Expected Net Profit	R	R
Year 1	80 000	70 000
Year 2	70 000	70 000
Year 3	60 000	70 000
Year 4	50 000	70 000
Year 5	40 000	70 000

The company estimates that its cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes.

Answer:

QUESTION 5

(20 Marks)

WORKINGS (if any)

PROJECT A

PROJECT B

5.1

PAYBACK PERIOD: PROJECT A
Investment
Workings:
Payback period is:

PAYBACK PERIOD: PROJECT B
=
=
Payback period is:

(OR you may use your own format.) (6 marks)

5.2

ACCOUNTING RATE OF RETURN: PROJECT A	=		X
=		X
=

(3 marks)

5.3

NPV: PROJECT A
Year	Net cash flow	Discount factor	Present value
1
2
3
4
5
Total PV
Investment
NPV

NPV: PROJECT B
Annual net cash flow
Discount factor
Total PV
Investment
NPV

(OR you may use your own format.) (6 marks)

5.4

IRR: PROJECT B
Year	Net cash flow	Discount Factor %	Discount Factor %	Present value %	Present value %
1 5
Investment
NPV

(OR you may use your own format.)

Interpolation

IRR =		+
=		+
=

(5 marks)