Answered step by step
Verified Expert Solution
Question
1 Approved Answer
QUESTION TWO Evaluate the Internal Rate of Return (IRR) as an investment appraisal technique. Xedr Investments Ltd have just made an investment of R550 000
QUESTION TWO Evaluate the Internal Rate of Return (IRR) as an investment appraisal technique. Xedr Investments Ltd have just made an investment of R550 000 in new equipment. Additional information: Expected useful life 5 years (straight line depreciation) Salvage value 50 000 Cost of Capital 10% after tax Tax rate 30% Years 1 2 Cash flows 220 000 200 000 120 000 110 000 50 000 3 4 5 Required: 2.2.1 Calculate the payback period (4) and the accounting rate of return (4). 2.2.2 Xedr Investments Ltd requires a payback period of no more than 3 years and an accounting rate of return of at least 30%. On the basis of these criteria, should this project be accepted? Justify your answer. 2.2.3 The payback period method makes a crucial omission in its calculation, namely the time value of money. Complete the above computation using a method that accounts for the time value of money. On the basis of this calculation, should the project be accepted? Justify your
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started