Reeds

Question 4 Reed is evaluating two assets, A and B. Details about each of the asset is listed in the table below. Assume each asset has a useful life of five years and depreciated on straight-ine basis Asset B Asset A R200,000 Year (CFO Depreciation Cash Flow (CF hitial Outlay (CFO R180 Cash Flow 70,000 80.000 90.000 90.000 100.000 40.000 40.000 40,000 40.000 40.000 RB0,000 90.000 30,000 40,000 40,000 eciation 36.000 38.000 36.000 36,000 36.000 2 3 5 The following conditions apply o Reed requires 12 percent returm on each of those equally risky assets. D Maximum payback is 2.5 years D Maximum discounted payback period is 3 25 years O Minimum accounting rate of returm is 30 percent Required: 4.1. Calculate the accounting rate of return from each asset, assess its acce indicate which asset is best, using the accounting rate of return. [4 eptablity and 4.2. Calculate the payback period for each asset, assess its acceptability and indicate which asset is best, using the payback period 14 4.3. C alculate the discounted payback period for each asset, assess its acceptability and indicate which asset is best, using the discounted payback period [4] 44 Contrast your findings in part (4.1), (42), and (43), Which asset would you recommend to Reed assuming that they are mutually exdlusive? Why? (3]