Question: QUESTION 5 Read the information below and answer the following questions INFORMATION The management of Mastiff Enterprises has a choice between two projects viz. Project
QUESTION 5
Read the information below and answer the following questions
INFORMATION
The management of Mastiff Enterprises has a choice between two projects viz. Project Cos and Project Tan, each of which requires an initial investment of R2 500 000. The following information is presented to you:
|
| PROJECT COS | PROJECT TAN |
|
| Net Profit | Net Profit |
| Year | R | R |
| 1 | 130 000 | 80 000 |
| 2 | 130 000 | 180 000 |
| 3 | 130 000 | 120 000 |
| 4 | 130 000 | 220 000 |
| 5 | 130 000 | 50 000 |
A scrap value of R100 000 is expected for Project Tan only. The required rate of return is 15%. Depreciation is calculated using the straight-line method.
Use the information provided above to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.
| 5.1 Payback Period of Project Tan (expressed in years, months and days). | (3 marks) |
| 5.2 Net Present Value of Project Tan. | (4 marks) |
| 5.3 Accounting Rate of Return on average investment of Project Tan (expressed to two decimal places). | (4 marks) |
| 5.4 Benefit Cost Ratio of Project Cos (expressed to three decimal places). | (4 marks) |
| 5.5 Internal Rate of Return of Project Cos (expressed to two decimal places) USING INTERPOLATION. | (5 marks) |
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