Information Roland Limited is considering investing in one of two alternative capital projects. Estimated profits for both projects are as follows:

Annual profits (loss): R

R

Year 1 (40 000) 36 000

Year 2 (10 000) 36 000

Year 3 20 000 36 000

Year 4 120 000 36 000 ..

Year 5 140 000 36 000

Initial cash investment 40 000

Expected useful life Depreciation per year 5 years 80 000 400 000 5 years 80 000 The company estimates that its cost of capital is 12%. 1.1 Which project should be chosen on the basis of Payback Period? Support your answer with relevant calculations. (6 marks)

1.2 Calculate the Accounting Rate of Return for each project. (4 marks)

1.3 Calculate the Net Present Value for each project. (4 marks)

1.4 Based on your calculation in 1.3, which project should be chosen? Why? (1 mark)

1.5 Calculate the Internal Rate of Return for Project B, if the net cash annual inflow is R100 000 (5 marks