Answer the questions from the information provided.

4.1 Study the information given below and answer the following questions:

4.1.1 Calculate the Payback Period of Project B (expressed in years, months and days). (3 marks)

4.1.2 Calculate the Accounting Rate of Return on initial investment of Project A (expressed to two decimal places). (4 marks)

4.1.3 Calculate the Net Present Value (NPV) of both projects. (6 marks)

4.1.4 Based on the NPV, which project should be chosen? Why? (1 marks)

INFORMATION

The following data relate to two investment projects, only one of which may be selected:

Project A Project B

Initial capital expenditure 1 400 000 1 400 000

Net profit per year: Year 1 670 000 270 000 Year 2 540 000 280 000 Year 3 410 000 650 000 Year 4 270 000 710 000

Expected scrap value 400 000 0

Note: The straight-line method of depreciation is used. The cost of capital is 15%. Ignore taxes.