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Silverline Services Ltd is considering a new project with the following forecasted details: Initial investment is R550,000 and the expected residual value is R20,000. Year

Silverline Services Ltd is considering a new project with the following forecasted details:

  • Initial investment is R550,000 and the expected residual value is R20,000.

Year

Cashflows

Discount factor

Year 1

R110,000

0.909

Year 2

R130,000

0.826

Year 3

R100,000

0.751

Year 4

R90,000

0.683

Year 5

R70,000

0.621

Assuming a cost of capital of 11%. The cash flows are after tax, with depreciation at R28,000 annually. The tax rate is 29%.

Required:

  1. Calculate each of the following: 1.1 Accounting Rate of Return 1.2 Payback period 1.3 Net Present Value (NPV) 1.4 Discounted Payback period

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