QUESTION FOUR $(25$ Marks$)$

INFORMATION

The management of Maya Enterprises has to choose between two projects viz. Project R and Project E$,$ each of which

requires an initial investment of R$250000.$ No scrap values are expected. The following information is presented to you:

PROJECT R PROJECT E

Net cash inflows: Net Profit:

Year R R

$1630008000$

$26300018000$

$36300012000$

$46300020000$

$5630007000$

The required rate of return is $15\%.$ Depreciation is calculated using the straight$-$line method.

Required:

Use the information provided below to calculate the following:

$4\mathrm{.}1$ Payback Period of Project E $($answer expressed in years, months and days$).(4$ Marks$)$

$4\mathrm{.}2$ Net Present Value of project E$.($Round off amounts to the nearest Rand.$)(4$ Marks$)$

$4\mathrm{.}3$ Accounting Rate of Return of Project E $($answer rounded off to $2$ decimal places$).(4$ Marks$)$

$4\mathrm{.}4$ Internal Rate of Return of Project Ram $($answer rounded off to $2$ decimal places$).(8$ Marks$)$

$4\mathrm{.}5$ Capital budgeting techniques serve as essential tools for companies in making strategic investment

decisions. You are required to discuss the purpose of companies using these techniques to value various

investment decisions.