PROJECT FINANCIAL MANAGEMENT

QUESTION 4

Use the information provided below to answer the following questions:

1. 4.1 Calculate the Payback Period (in years). (3)
2. 4.2Calculate the Internal Rate of Return (answer expressed to two decimal places). (5)
3. 4.3Based on the Internal Rate of Return, should Siyakha Limited consider investing in the project? Why? (1)
4. 4.4Calculate the Return on Investment, if the project is expected to have a scrap value of R100 000 (answer expressed to two decimal places). (5)
5. 4.5Explain TWO (2) advantages of using Internal Rate of Return as a technique to evaluate investments in projects. (4)

INFORMATION

Siyakha Limited is investigating an opportunity to invest R1 500 000 in a project. The project is expected to generate net cash flows of R480 000 per annum for five years. The expected scrap value is zero. The company uses the straight-line method of depreciation. The cost of capital is 15%

ANSWER CRITICALLY AND SHOW ALL CALCULATIONS.