Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION 1 [25 Marks] K-Way Limited (Ltd), a softdrink manufacturer has the option to invest in machinery for projects A and B. However due to

QUESTION 1 [25 Marks] K-Way Limited (Ltd), a softdrink manufacturer has the option to invest in machinery for projects A and B. However due to constraint financial resources the company may only be able to invest in one of them. You are given the following projected data: Information: Project A has an initial cost of R180 000 and the expected net profit over the five-year investment is R24 000, R31 000, R36 000, R40 000 and R19 000 per annum, respectively. Whereas, Project B has an initial cost of R190 000 with projected annual net profit of R24 000 every year for the 5-year expected lifespan. Additional information: Project A machinery will be disposed of at the end of year 5 with a scrap value of R20 000. Project B machinery will be disposed of at the end of year 5 with a nil scrap value. Depreciation is calculated on a straight-line basis. The discount rate to be used by the company is 12%. Required: 1.1 Calculate the accounting rate of return for project A and B. (5 marks) 1.2 Determine the payback period for each project. (5 marks) 1.3 Calculate the net present value of each project. (7 marks) 1.4 Using your answers from question 1.3 above, choose with reasons the most suitable project? (3 marks) 1.5 Calculate the internal rate of return for project B. (5 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Financial Management

Authors: Glen Arnold

4th Edition

0273719068, 978-0273719069

More Books

Students also viewed these Finance questions

Question

Describe the concept of functional dependency.

Answered: 1 week ago

Question

Describe the major focus of Frankls logotherapy.

Answered: 1 week ago

Question

Why would Depreciation not be included on a Cash Payments Budget?

Answered: 1 week ago

Question

mple 10. Determine d dx S 0 t dt.

Answered: 1 week ago