QUESTION $4$

$(25$ Marks$)$

INFORMATION

MLT Ltd must choose between these two projects, Project A or Project B$,$ for which the following net cash inflows have been forecasted:

$\backslash$table$[[$Year$,$Project A$,$Project B$],[1,$R$60000,$R$172000],[2,$R$160000,$R$172000],[3,$R$200000,$R$172000],[4,$R$360000,$R$172000]]$

Project A requires an investment of R$560000$ while Project B requires an investment of R$500000.$ The average aninual profit of projects Project A and Project B are expected to be R$55000$ and R$47000$ respectively. Both projects are expected to have no salvage value. The minimum required rate of return on these projects is $12\%.$

REQUIRED: Use the information given above to calculate the following:

$4\mathrm{.}1$ Payback Period of both projects $($answers expressed in years and months$).$

$(4$ marks$)$

$4\mathrm{.}2$ Accounting Rate of Return of Project A $($answer expressed to two decimal places$).$

$(3$ marks$)$

$4\mathrm{.}3$ Net Present Value of both projects $($amounts rounded off to the nearest Rand$).(6$ marks$)$

$4\mathrm{.}4$ Profitability Index of Project B $($answer expressed to two decimal places$).$

$(2$ marks$)$

$4\mathrm{.}5$ Internal Rate of Return of Project B $($answer expressed to two decimal places$).$

$(5$ marks$)$

$4\mathrm{.}6$ Discuss five advantages of the Accounting Rate of Retum.

$(5$ marks$)$

Note: Where applicable, use the present value tables provided in APPENDICES

END OF PAPER