REQUIRED Study the information given below and answer the following questions: 5.1 Calculate the Payback Period of Project A (expressed in years, months and days). (3 marks)

5.2 Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). (4 marks)

5.3 Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places). (7 marks)

5.4 Refer to yours answers in question 5.3. Which project should be chosen? Why? (1 mark)

5.5 Calculate the Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.

(5 marks)

INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be chosen.

Project A Project B

Initial cost R900 000 R900 000

Expected useful life 5 years 5 years

Expected scrap value R100 000 0

Depreciation per year R160 000 R180 000

Expected net profit: R R

End of year 1 100 000 90 000

2 140 000 90 000

3 150 000 90 000

4 120 000 90 000

5 50 000 90 000

The company estimates that its cost of capital is 12%. Ignore taxes.