A company is considering two mutually exclusive projects requiring an initial cash outlay of Sh 10,000 each and with a useful life of 5 years. The company required rate of return is 10% and the appropriate corporate tax rate is 50%. The projects will be depreciated on a straight line basis. The before depreciation and taxes cashflows expected to be generated by the projects are as follows. YEAR Project A Project B 5 Shs 4,000 4,000 4,000 4,000 4,000 Shs 6,000 3,000 2,000 5,000 5,000 Required: Calculate for each project i. The payback period ii. The average rate of return The net present value iv. Profitability index v. The internal rate of return Which project should be accepted? Why? XYZ Ltd. is considered acquiring ABC Ltd. The following information relates to ABC Ltd. for the next five years. The projected financial data are for the post-merger period. The corporate tax rate is 40% for both companies. Amounts are in Shs '000' 1994 1995 1996 1997 2011 Net sales 1,050 1,260 1,510 1,740 1,910 Cost of sales 735 882 1,057 1,218 1,337 Selling & admn. expenses 100 120 130 150 160 Interest expenses 40 50 70 90 110 Other information a After the fifth year the cashflows available to XYZ from ABC is expected to grow by 10% per annum in perpetuity. b. ABC will retain Shs 40,000 for internal expansion every year. The cost of capital can be assumed to be 18%. REQUIRED: i. Estimate the annual cash flows. Determine the maximum amount XYZ would be willing to acquire ABC at.