Gumbi Traders are looking to invest in new machinery in view of their expanding operations. The following
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Question:
Gumbi Traders are looking to invest in new machinery in view of their expanding operations. The following information has been extracted from the reports relating to the project: Investment R1 000 000 Average annual profit R342 500 Life span 4 years Minimum required rate of return 12% Net Cash flows: 1st year R200 000 2nd year R350 000 3rd year R400 000 4th year R420 000
Required:
3.1 Calculate the accounting rate of return (Express the answer to two decimal places). (4)
3.2 Calculate the payback period (answer in years, months and days). (4)
3.3 Calculate the net present value. (Round off amounts to the nearest Rand). (6)
3.4 Would the project be acceptable at a cost of capital of 10%? Motivate your answer with an appropriate calculation.
Expert Answer:
31 Investment R1000000 Average annual profit R342500 32 Year Cashflows Cumulative cash... View the full answer
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