Use the information provided to answer the questions. Use the information provided below to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5

. 5.1 5.1.1 Calculate the Payback Period of Project A (expressed in years, months and days). (3 marks)

Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to two decimal places). 5.1.2 (5 marks)

5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). (6 marks)

Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivate your choice.

INFORMATION

Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You are given the following projected data: Project A Project B Initial cost R300 000 R300 000 Scrap value R40 000 0 Depreciation per year R52 000 R60 000 Net profit Year 1 R20 000 Year 2 R30 000 Year 3 R50 000 Year 4 R60 000 Year 5 R10 000 Net cash flows Year 1 R90 000 Year 2 R90 000 Year 3 R90 000 Year 4 R90 000 Year 5 R90 000 Additional information The discount rate used by the company is 12%