QUESTION TWO

1. Suppose a business takes out a ZMW5, 000, five-year loan at 9 percent. The loan agreement calls for the borrower to pay the interest on the loan balance each year. Prepare an amortization schedule showing how the loan will be repaid.

[13 Marks]

2. State the criterion for accepting or rejecting independent projects under each of the following methods.

1. Profitability index [2 Marks]
2. Discounted payback period [2 Marks]
3. Accounting rate of return [2 Marks]
4. Net present value [2 Marks]
5. Payback period [2 Marks]
6. Internal rate of return [2 Marks]

[TOTAL: 25 MARKS]