Question
QUESTION 1 The following data relate to two investment projects: Initial capital expenditure Profit (loss) year 1 Profit (loss) year 2 Profit (loss) year 3
QUESTION 1 The following data relate to two investment projects: Initial capital expenditure Profit (loss) year 1 Profit (loss) year 2 Profit (loss) year 3 Profit (loss) year 4 Depreciation Additional information Project A Required: R50 000 R30 000
R30 000 R20 000 R10 000 R10 000 1. Profit is calculated before deducting straight-line depreciation. 2. The cost of capital is 10%. MARKS: 17 Project B R50 000 R20 000 R20 000 R30 000 R30 000 R10 000 1.1 Calculate the Accounting Rate of Return (ARR) for Project A. (4.5 marks) 1.2 Calculate the ARR for Project B. (4.5 marks) 1.3 Based on ARR, which project would you recommend for acceptance? Why? (1 marks) 1.4 Calculate the Payback period for Project A. (3 marks) 1.5 Calculate the Payback period for Project B. (4 marks)
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