**A- A ES sing Fant General No Protection nument greitested outside the business will get return, the project should be accepted only When Return of new investment is greater than return invested outside QUESTION TWO Lolo Lid have just made an investment of R400 000 in a machine [20] Further details Expected useful life 5 years (stranght line depreciation) - Salvage value 120 000 Cost of Capital 10% - Expected profit after tax dala is as follows (tax rate is 30%) Year 1 2 3 Net Profit 10 000 40 000 70 000 125 000 12 000 4 5 Required: 2.1 Calculate the Payback Period (4) 2.2 Calculate the Accounting (Average rate of retum 14) 2.3 Lolo Ltd requires a payback period of no more than 4 years and a retum of at least 30% On the basis of these criteria, should this project be accepted? (4) 2.4 A financial advisor has formed the accountants of Lolo Lid that the above methods ignore the time value of money and has suggested they use the NPV method to assess project acceptance Assist with the calculations and advise whether the project should be accepted? (8) 2 35 wordt English United Kingdom