The following information relates to three possible capital expenditure projects. Because of capital rationing, only one project can be accepted.

Project X Project Y Project Z

Initial cost R400 000 R460 000 R360 000

Expected life 5 years 5 years 4 years

Expected scrap value R20 000 R30 000 nil

Expected net cash inflows: R R R

End of year 1 160 000 200 000 110 000

2 140 000 140 000 65 000

3 130 000 100 000 95 000

4 120 000 100 000 100 000

5 110 000 100 000 -

The company estimates its cost of capital is 18%.

Required

1.1 Calculate the payback period for project Y. (Answer must be expressed in years and months) (4)

1.2 Calculate the accounting rate of return for project Z. (Answer expressed to 2 decimal places) (6)

1.3 Calculate the net present value of each project. (Round off amounts to the nearest Rand) (12)

1.4 Using the answers from question 1.3, which project should be chosen? Explain why. (3)