Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION 5 (20 Marks) Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after QUESTION

image text in transcribed

QUESTION 5 (20 Marks) Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after QUESTION 5. REQUIRED Study the information provided below and calculate the following: 5.1 Payback Period of both projects (expressed in years, months and days). (6 marks) 5.2 Accounting Rate of Return on average investment of Project A (expressed to two decimal places). (3 marks) 5.3 Net Present Value of both projects. Your answer must include the calculations of the present values and NPV. (6 marks) 5.4 Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION The following information relates to two capital investment projects that are under consideration by Alpha Limited. Initial cost Expected life Scrap value Expected net profit: Year 1 Year 2 Year 3 Year 4 Year 5 Project A Project B R600 000 R600 000 5 years 5 years 0 0 R R 80 000 70 000 70 000 70 000 60 000 70 000 50 000 70 000 40 000 70 000 The company estimates that its cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes.

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

Accounting What the Numbers Mean

Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,

9th Edition

978-0-07-76261, 0-07-762611-7, 9780078025297, 978-0073527062

More Books

Students also viewed these Accounting questions

Question

When do obsessive-compulsive behaviors begin for most individuals?

Answered: 1 week ago

Question

What were Sarahs primary obsessions and compulsions?

Answered: 1 week ago