QUESTION ONE $(25$ Marks$)$

XYZ Corporation is considering a capital budgeting project and requires a detailed analysis. The company has provided you

with the following financial information and ratios:

Return on Investment $($ROI$)$: $15\%$

Payback Period: $3$ years

Net Present Value $($NPV$)$: R$50,000$

Internal Rate of Return $($IRR$)$: $12\%$

Cash Flows:

Y e ar $1$: R$20000$

Y e ar $2$: R$30000$

Y e ar $3$: R$40000$

Required:

$1\mathrm{.}1$ Calculate the initial investment required for the project. $(4$ Marks$)$

$1\mathrm{.}2$ Discuss the significance of each ratio in evaluating the project. $(8$ Marks$)$

$1\mathrm{.}3$ Based on the given information, should XYZ Corporation undertake the project? Justify your answer.

$(8$ Marks$)$

$1\mathrm{.}4$ Calculate the ARR for XYZ Corporation. Assume depreciation is calculated on the straight$-$line

method and that the project has a scrap value of R$5000.$

$(5$ Marks$)$