Question 1

1.1. What will my investment of R100 500 be worth if my bank pays me simple interest of 9% per annum and I invest my money for 180 days? 4 Marks

1.2. Calculate the present value of a growing perpetuity with the following information (round off the answer to the nearest rand): 6Marks

Cash flow at the end of the first year R60 000

Growth rate (g) 10%

Opportunity cost 20%

Question 2

You recently accepted an assignment with Oxford Limited as a financial consultant. One of your first assignments is the analysis of two proposed capital investment projects. Details of initial investments, after-tax cash flows and average annual profits are represented below:

	YEAR	After-tax Cash flows
Initial investments Cash flows Average annual profits	1 2 3 4	Project A (R50 000) R26 200 R12 200 R12 200 R5 000 R1 400	Project B (R50 000) R14 200 R14 200 R14 200 R14 200 R1 700

2.1. Which project has a shorter payback period? Motivate your answer by doing the relevant calculations (answers expressed in years, months, and days). 20 Marks

2.2. Calculate the accounting rate of return for project B if it had a scrap value of R4 000 at the end of year 4 (answer expressed to two decimal places). 8 Marks

2.3. Name two disadvantages of using payback period as a technique to evaluate capital investment decisions. 2 Marks