QUESTION $5$

$(20$ Marks$)$

Note: Where discount factors are required, use only the present value tables $($Appendix $1$ and $2)$ that appear after the formula sheet.

REQUIRED

Use the information provided below to calculate the following. Ignore taxes.

$5\mathrm{.}1$ Payback Period of Project Ewe $($expressed in years, months and days$).$

$(3$ marks$)$

$5\mathrm{.}2$ Net Present Value of Project Ewe. Show the calculations of the present values as well as the net present values.

$(4$ marks$)$

$5\mathrm{.}3$ Accounting Rate of Return on average investment of Project Ewe $($expressed to two decimal places$).$

$(4$ marks$)$

$5\mathrm{.}4$ Profitability Index of Project Ram $($expressed to two decimal places$).$ Show the calculations of the present values.

$(4$ marks$)$

$5\mathrm{.}5$ Internal Rate of Return $($IRR$)$ of Project Ram $($expressed to two decimal places$).$ Your answer must include two net present value calculations $($using rates of return of $15\%$ and $16\%)$ and the steps to calculate the IRR expressed to two decimal places.

$(5$ marks$)$

INFORMATION

The management of Hadley Enterprises has a choice between two projects viz. Project Ram and Project Ewe, each of which requires an initial investment of $R500000.$ A scrap value of $R50000($not included in the figures below$)$ is expected for Project Ewe only. The following projected net cash flows of the two projects are presented to you:

$\backslash$table$[[$Year$,$PROJECT RAM,PROJECT EWE$],[,$R$,],[1,150000,130000],[2,150000,150000],[3,150000,140000],[4,150000,150000],[5,150000,130000]]$

The expected average annual profit of each project is $R50000.$ The required rate of return is $12\%.$

TOTAL: $100$ MARKS

END OF PAPER