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Study the information given below and Where applicable, use the present value tables that appear in the module guide. Calculate the Payback Period of both

Study the information given below and Where applicable, use the present value tables that appear in the module guide.

  1. Calculate the Payback Period of both projects (expressed in years, months and days) (6 marks)
  2. On the basis of the payback period only, which project should be chosen? Why? (1 mark)
  3. Calculate the Net Present Value of both projects. (6 marks)
  4. Calculate the Accounting Rate of Return (on average investment) of Project A (expressed to two decimal places). (4 marks)
  5. Calculate the Net Benefit Cost Ratio of Project A (expressed to three decimal places. (3 marks)

Information

Maxwell Limited needs your assistance in analysing two proposed capital investment projects. Details of the initial investments, net cash flows, net profit and time considerations are presented below:

Net cash flows

Net profit

Year

Project A

Project B

Project A

Project B

0 (R1 500 000) (R1 500 000)
1 R580 000 R540 000 R205 000 R165 000
2 R680 000 R540 000 R305 000 R165 000
3 R500 000 R540 000 R125 000 R165 000
4 R400 000 R540 000 R25 000 R165 000

The required rate of return is 15%. No scrap values are expected.

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