QUESTION 2 (10 Marks)

REQUIRED

Study the information given below which was made available by Levis Limited and calculate

the following:

2.1 Accounting Rate of Return on average investment of Project A (answer

expressed to two decimal places).(3 marks)

2.2 Net Present Value of Project A (amounts rounded off to the nearest Rand.) (3 marks)

2.3 Internal Rate of Return of Project B (answer expressed to two decimal

places).(4 marks)

INFORMATION

The following information relates to two capital investment projects, under consideration by

Levis Limited for 2021:

Project A Project B

Initial cost R800 000 R800 000

Expected useful life 5 years 5 years

Scrap/Residual value (not included in the figures below) R80 000 0

Expected annual profits: R R

End of: Year 1

Year 2

Year 3

Year 4

Year 5

140 000

130 000

120 000

110 000

100 000

105 000

105 000

105 000

105 000

105 000

The company estimates that its cost of capital is 15%. The straight-line method of

depreciation is used.

TOTAL: 20 MARKS