Question
As a financial manager of Xerox Enterprises, you are required to analyse two proposed capital investments, Projects A and B. Each has a cost of
As a financial manager of Xerox Enterprises, you are required to analyse two proposed capital investments, Projects A and B. Each has a cost of R100 000, and the cost of capital for each project is 12%. Depreciation on each project is estimated at R25 000 per year. The projects expected profit are as follows:
Project A Project B
Year
1 R40 000 R10 000
2 R5 000 R10 000
3 R5 000 R10 000
4 (R15 000) R10 000
Required 2.1 Calculate the payback period for each project (In years, months and days). 2.2 Calculate the NPV for each project. 2.3 Indicate with a reason which project should be chosen by Xerox Enterprises. 2.4 Calculate the ARR for project A.
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