QUESTION $5(20$ Marks$)$

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

appear after the formula sheet.

REQUIRED

Use the information provided below to calculate the following. Ignore taxes.

$5\mathrm{.}1$ Payback Period of Project Ewe $($expressed in years, months and days$).(3$ marks$)$

$5\mathrm{.}2$ Net Present Value of Project Ewe. Show the calculations of the present values as well as

the net present values. $(4$ marks$)$

$5\mathrm{.}3$ Accounting Rate of Return on average investment of Project Ewe $($expressed to two

decimal places$).(4$ marks$)$

$5\mathrm{.}4$ Profitability Index of Project Ram $($expressed to two decimal places$).$ Show the

calculations of the present values. $(4$ marks$)$

$5\mathrm{.}5$ Internal Rate of Return $($IRR$)$ of Project Ram $($expressed to two decimal places$).$ Your

answer must include two net present value calculations $($using rates of return of $15\%$ and

$16\%)$ and the steps to calculate the IRR expressed to two decimal places. $(5$ marks$)$

INFORMATION

The management of Hadley Enterprises has a choice between two projects viz. Project Ram and Project Ewe,

each of which requires an initial investment of R$500000.$ A scrap value of R$50000($not included in the figures

below$)$ is expected for Project Ewe only. The following projected net cash flows of the two projects are

presented to you:

Year PROJECT RAM PROJECT EWE

R R

$1150000130000$

$2150000150000$

$3150000140000$

$4150000150000$

$5150000130000$

The expected average annual profit of each project is R$50000.$ The required rate of return is $12\%.$