QUESTION TWO

$[25]$

$2\mathrm{.}1$ Describe the rationale behind the Internal Rate of Return $($IRR$)$

$22$ Power Investments Ldd have fust made an investment of R$550000$ in a new delivery vehicle. This

$(5)$

vehicte me be used for deliveries and to generate revenues from such activities.

Additional information:

Expected useful life

Salvage value

Cost of Capital

Tax rate

$5$ years $($straight line depreciation$)$

R$50000$

$10\%$ after tax

$30\%$

$\backslash$table$[[$Year$,\backslash$table$[[$Cash Flows$],[$R$]]],[1,220000],[2,200000],[3,120000],[4,110000],[5,50000]]$

Required:

$2\mathrm{.}2\mathrm{.}1$ Calculate the payback period and the accounting rate of return.

$2\mathrm{.}2\mathrm{.}2$ The company requires a payback period of no more than $3$ years and a return of at least $30\%.$ On the basis of these criteria, should this project be accepted or rejected. Discuss wt I why not.

$2\mathrm{.}2\mathrm{.}3$ Calculate the net present value of the above project and state whether the project should be accepted based on this method.