QUESTION $3(20$ Marks$)$

Note: Where discount factors are required use only the present value tables $($Appendix $1$ and $2)$ that

appear after QUESTION $3.$

REQUIRED

Study the information provided below and calculate the following:

$3\mathrm{.}1$ Payback period of both projects $($expressed in years, months and days.$)(6$ marks$)$

$3\mathrm{.}2$ Accounting Rate of Return on average investment of Project X $($expressed to two decimal

places$).(3$ marks$)$

$3\mathrm{.}3$ Net Present Value of Project X$.$ Your answer must include the calculations of the present

values and the net present value. $(3$ marks$)$

$3\mathrm{.}4$ Benefit Cost Ratio of Project Y $($expressed to two decimal places$).(3$ marks$)$

$3\mathrm{.}5$ Internal Rate of Return of Project Y $($expressed to two decimal places$).$ Your answer must

include the calculation of two net present values $($using consecutive rates$)$ and

interpolation. $(5$ marks$)$

INFORMATION

The following information relates to two projects under consideration by BVN Limited:

Project X Project Y

Initial cost R$1000000$ R$1000000$

Expected life $5$ years $5$ years

Expected scrap value $($not included in the figures below$)$ R$1000000$

Average annual profit R$122000$ R$110000$

Expected net cash flows: R R

End of year $1350000310000$

$2340000310000$

$3270000310000$

$4300000310000$

$5250000310000$

The company estimates that its cost of capital is $12\%.$

END OF PROJECT

APPENDIX $1$: Present value of R$1$

Number

of

Periods

$1\%2\%3\%4\%5\%6\%7\%8\%9\%10\%11\%12\%13\%14\%15\%16\%17\%18\%19\%20\%25\%$

$10\mathrm{.}99010\mathrm{.}98040\mathrm{.}97090\mathrm{.}96150\mathrm{.}95240\mathrm{.}94340\mathrm{.}93460\mathrm{.}92590\mathrm{.}91740\mathrm{.}90910\mathrm{.}90090\mathrm{.}89290\mathrm{.}88500\mathrm{.}87720\mathrm{.}86960\mathrm{.}86210\mathrm{.}85470\mathrm{.}84750\mathrm{.}84030\mathrm{.}83330\mathrm{.}8000$

$20\mathrm{.}98030\mathrm{.}96120\mathrm{.}94260\mathrm{.}92460\mathrm{.}90700\mathrm{.}89000\mathrm{.}87340\mathrm{.}85730\mathrm{.}84170\mathrm{.}82640\mathrm{.}81160\mathrm{.}79720\mathrm{.}78310\mathrm{.}76950\mathrm{.}75610\mathrm{.}74320\mathrm{.}73050\mathrm{.}71820\mathrm{.}70620\mathrm{.}69440\mathrm{.}6400$

$30\mathrm{.}97060\mathrm{.}94230\mathrm{.}91510\mathrm{.}88900\mathrm{.}86380\mathrm{.}83960\mathrm{.}81630\mathrm{.}79380\mathrm{.}77220\mathrm{.}75130\mathrm{.}73120\mathrm{.}71180\mathrm{.}69310\mathrm{.}67500\mathrm{.}65750\mathrm{.}64070\mathrm{.}62440\mathrm{.}60860\mathrm{.}59340\mathrm{.}57870\mathrm{.}5120$

$40\mathrm{.}96100\mathrm{.}92380\mathrm{.}88850\mathrm{.}85480\mathrm{.}82270\mathrm{.}79210\mathrm{.}76290\mathrm{.}73500\mathrm{.}70840\mathrm{.}68300\mathrm{.}65870\mathrm{.}63550\mathrm{.}61330\mathrm{.}59210\mathrm{.}57180\mathrm{.}55230\mathrm{.}53370\mathrm{.}51580\mathrm{.}49870\mathrm{.}48230\mathrm{.}4096$

$50\mathrm{.}95150\mathrm{.}90570\mathrm{.}86260\mathrm{.}82190\mathrm{.}78350\mathrm{.}74730\mathrm{.}71300\mathrm{.}68060\mathrm{.}64990\mathrm{.}62090\mathrm{.}59350\mathrm{.}56740\mathrm{.}54280\mathrm{.}51940\mathrm{.}49720\mathrm{.}47610\mathrm{.}45610\mathrm{.}43710\mathrm{.}41900\mathrm{.}40190\mathrm{.}3277$

$60\mathrm{.}94200\mathrm{.}88800\mathrm{.}83750\mathrm{.}79030\mathrm{.}74620\mathrm{.}70500\mathrm{.}66630\mathrm{.}63020\mathrm{.}59630\mathrm{.}56450\mathrm{.}53460\mathrm{.}50660\mathrm{.}48030\mathrm{.}45560\mathrm{.}43230\mathrm{.}41040\mathrm{.}38980\mathrm{.}37040\mathrm{.}35210\mathrm{.}33490\mathrm{.}2621$

$70\mathrm{.}93270\mathrm{.}87060\mathrm{.}81310\mathrm{.}75990\mathrm{.}71070\mathrm{.}66510\mathrm{.}62270\mathrm{.}58350\mathrm{.}54700\mathrm{.}51320\mathrm{.}48170\mathrm{.}45230\mathrm{.}42510\mathrm{.}39960\mathrm{.}37590\mathrm{.}35380\mathrm{.}33320\mathrm{.}31390\mathrm{.}29590\mathrm{.}27910\mathrm{.}2097$

$80\mathrm{.}92350\mathrm{.}85350\mathrm{.}78940\mathrm{.}73070\mathrm{.}67680\mathrm{.}62740\mathrm{.}58200\mathrm{.}54030\mathrm{.}50190\mathrm{.}46650\mathrm{.}43390\mathrm{.}40390\mathrm{.}37620\mathrm{.}35060\mathrm{.}32690\mathrm{.}30500\mathrm{.}28480\mathrm{.}26600\mathrm{.}24870\mathrm{.}23260\mathrm{.}1678$