Question: QUESTION 5 (20 Marks) Note: Where applicable, use the presentvalue tables providedin APPENDICES 1 and 2 that appear after QUESTION 5. REQUIRED Use the information
| QUESTION 5 | (20 Marks) |
| Note: Where applicable, use the presentvalue tables providedin APPENDICES 1 and 2 that appear after QUESTION 5. | |
REQUIRED
Use the information given below to calculate the following:
- Payback Period of both projects (expressed in years, months and days) (6 marks)
- Net Present Value of both projects (6 marks)
- Accounting Rate of Return (on averageinvestment) of ProjectRon (expressed to two
decimalplaces) (3 marks)
- Internal Rate of Return (IRR) of Project Hob. Your answer must include the calculation of two net present values as well as the determination of the IRR expressed to two
decimalplaces. (5 marks)
INFORMATION
Trendy Manufacturers is investigating the possibility of investing in one of two projects.The net cash flows for the two competing investmentopportunities are as follows:
| Year | Project Ron | Project Hob |
| 1 | R560 000 | R340 000 |
| 2 | R500 000 | R340 000 |
| 3 | R400 000 | R340 000 |
| 4 | R200 000 | R340 000 |
| 5 | R50 000 | R340 000 |
Each project requiresan initial investmentof R1 200 000. A scrap value of R50 000 (not included in the figuresabove) is expectedfor Project Ron only. The required rate of return is 12%. The estimated averageannual profits of Project Ron and Project Hob are R112 000 and R100 000 respectively.
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