QUESTION 5 (20 Marks)

Note:Where discount factorsare required, use only the present value tables (Appendix1 and 2) that appear after QUESTION 5.

REQUIRED

Study the information providedbelow and calculatethe following:

1. Payback Period of both projects(expressed in years,months and days). (6 marks)
2. Accounting Rate of Return on average investment of Project A (expressed to two decimal

places). (3 marks)

1. Net Present Value of both projects. Your answer must includethe calculations of the

present values and NPV. (6 marks)

1. Internal Rate of Return of ProjectB (expressed to two decimalplaces). Your answermust include two net present value calculations (usingconsecutive rates/percentages) and

interpolation. (5 marks)

INFORMATION

The following information relates to two capital investment projects that are under consideration by Alpha Limited.

	Project A	Project B
Initial cost	R600 000	R600 000
Expected life	5 years	5 years
Scrap value	0	0
Expected net profit:	R	R
Year 1	80 000	70 000
Year 2	70 000	70 000
Year 3	60 000	70 000
Year 4	50 000	70 000
Year 5	40 000	70 000

The company estimatesthat its cost of capitalis 12%. The straight-line method of depreciation is used. Ignore taxes.