QUESTION 5 (20 MARKS) Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.

REQUIRED Use the information provided below to calculate the following:

5.1 Payback Period of both projects (expressed in years, months and days). (6 marks)

5.2 Accounting Rate of Return (on initial investment) of Project Spik (expressed to two decimal places). (3 marks) 5.3 Net Present Value of both projects. (6 marks)

5.4 Internal Rate of Return of Project Spik (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks)

INFORMATION Telco Ltd had to choose between purchasing machinery for two projects, Spik and Span, for which the following profits are forecast: Year Spik

Yr1 Spik R70 000

Yrv1 Span R20 000 2

Y2 Spik R70 000

Y2Span R60 000

Yr3 Spik R70 000

Yr3 SpanR120 000

Yr 4 SpikR70 000

Yr 4 Span70 000 Each project requires an investment of R800 000.

Project Span is expected to have a scrap value of R40 000. The cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes.