Power Investments Ltd have just made an investment of R$550000$ in a new delivery vehicle. This

vehicle will be used for deliveries and to generate revenues from such activities.

Additional information:

$$ Expected useful life

$$ Salvage value

$$ Cost of Capital

$$ Tax rate

Year

$5$ years $($straight line depreciation$)$

R$50000$

$10\%$ after tax

$30\%$

Cash Flows

R

$1$

$2$

$220000$

$200000$

$3$

$120000$

$4$

$110000$

$5$

$50000$

Required:

$2\mathrm{.}2\mathrm{.}1$ Calculate the payback period and the accounting rate of return.

$(9)$

$2\mathrm{.}2\mathrm{.}2$ The company requires a payback period of no more than $3$ years and a return of at least

$30\%.$ On the basis of these criteria, should this project be accepted or rejected. Discuss why

$/$ why not.

$(3)$

$2\mathrm{.}2\mathrm{.}3$ Calculate the net present value of the above project and state whether the project should be

accepted based on this method.