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QUESTION 1 [25 Marks] K-Way Limited {Ltd}. a sottdrink 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 sottdrink manufacturer has the option to invest in machinery for projects A and B. However due to constraint nancial resources the company may only be able to invest in one of them. You are given the following projected date: Information: Project A has an initial cost of R130 [IUD and the expected net prot over the ve-year investment is R24 Uti. R31 Dtl. R36 Uti. R40 DOD and R19 {it'll} per annum. respectively. Whereas. Project B has an initial cost of R193 DUE} with projected annual net prot of R24 [IUD every year for the Sayear expected lifespan. Additional information: I Project A machinery will be disposed of at the end of year 5 with a scrap value of R23 DUE}. :- 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. I- 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. [T 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]
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