QUESTION 2

REQUIRED Use the information given below to calculate the following:

2.1 Payback Period of Project B (answer expressed in years, months and days).

2.2 Accounting Rate of Return (on average investment) of Project B (answer expressed to two decimal places).

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

2.4 Internal Rate of Return of Project B, if the net cash flows are R120 000 per year for five years (answer expressed to two decimal places).

Information

The following information relates to two capital investment projects:

Project A Project B

Initial cost 400 000 400 000

Expected useful life 5 years 5 years

Scrap /Residual value 40 000 0

Decpreciation per year 72 000 80 000

Expected annual profits $ $

End of: Year 1 100 000 45 000

Year 2 60 000 45 000

Year 3 50 000 45 000

Year 4 30 000 45 000

Year 5 20 000 45 000

The company estimates that its cost of capital is 15%

50 000

30 000

20 000

45 000

The company estimate that its cost of capital is 15%