Question
Omni Tech is considering an investment in new software with the following forecasted details: Initial amount invested is R300,000 and expected residual value is R10,000.
Omni Tech is considering an investment in new software with the following forecasted details: Initial amount invested is R300,000 and expected residual value is R10,000.
Year | Cashflows | Discount factor |
Year 1 | R70,000 | 0.909 |
Year 2 | R120,000 | 0.826 |
Year 3 | R110,000 | 0.751 |
Year 4 | R70,000 | 0.683 |
Year 5 | R60,000 | 0.621 |
Assuming that the cost of capital for the company is 10%. The cash flows are after tax and depreciation is charged at R20,000 per year. Tax rate is 29%.
Required: 1.1 Calculate each of the following: 1.1.1 Internal Rate of Return (IRR) 1.1.2 Profitability Index (PI)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Valuation The Art and Science of Corporate Investment Decisions
Authors: Sheridan Titman, John D. Martin
3rd edition
133479528, 978-0133479522
