Question 6

QUESTION 6 Study the information provided below and calculate following. Ignore taxes. Note: Where applicable, refer to the present value tables (APPENDIX 1 and 2) that appear after QUESTION 6. 6.1 Payback Period of both projects (expressed in years) (4 marks) 6.2 Return on average investment of Project A (expressed to two decimal places). (4 marks) 6.3 Net Present Value of both projects (amounts rounded off to the nearest Rand). (6 marks) 6.4 Internal Rate of Return of Project B (expressed to two decimal places). Your answer must be calculated by using interpolation. (6 marks) INFORMATION Two projects under consideration by Ambi Limited. Each project requires an investment of R400 000 and a useful a life of four years is expected. A scrap value of R50 000 is anticipated for Project A only. Depreciation per year for Project A and Project B is estimated at R87 500 and R100 000 respectively. The cost of capital is 15%. The annual net profit (loss) of Project A is expected to be as follows: Year 1: R87 500 Year 2: R62 500 Year 3: R42 500 Year 4: (R17 500) The revenues generated by Project B are forecast at R300 000 per year and the annual cash outflows are expected to be R155 000