QUESTION 1 (25 Marks)

As a financial manager of Dublin Enterprises, you are required to analyze two proposed capital investments, Projects ABC and Project XYZ. Each has a cost of R400 000, and the cost of capital for each project is 15%. Depreciation is calculated on the straight-line method. The projects expected profit are as follows:

PROJECT ABC PROJECT XYZ Year 1 R 8 0 000 R 3 0 000 2 R 1 0 000 R 3 0 000 3 R 1 0 000 R 3 0 000 4 (R 30 000) R 3 0 000

Required 1.1 Calculate the payback period for each project (In years, months and days). (10) 1.2 Calculate the NPV for each project (10) 1.3 Which project or projects should be accepted if they are independent? (1) 1.4 Calculate the ARR for project XYZ (4)

QUESTION 4 (25 Marks)

4.1 You want to begin saving for your daughters college education and you estimate that she will need R240 000 in 17 years. If you feel confident that you can earn 7.5% per year, how much do you need to invest today? (6)

4.2 Suppose your company expects to increase unit sales of widgets by 14% per year for the next 8 years. If you currently sell 2.5 million widgets in one year, how many widgets do you expect to sell in 6 years? (6)

4.3 You are looking at an investment that will pay R1 800 in 3 years if you invest R400 today. What is the implied rate of interest? (8)

4.4 You want to purchase a new car and you are willing to pay R500 000. If you can invest at 14% per year and you currently have R350 000, how long will it be before you have enough money to pay cash for the car? (5)