Question

REQUIRED

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

5.2 Calculate the Accounting Rate of Return (on average investment) of Project F (expressed to two decimal places). (5)

5.3 Calculate the Net Present Value of Project F (with amounts rounded off to the nearest Rand). (4)

5.4 Calculate the Internal Rate of Return (IRR) of Project G (expressed to two decimal places). (6)

5.5 Comment on the IRR calculated above. (2)

INFORMATION

Nascar Limited has the option to invest in machinery in Projects F and G but finance is only available to invest in one of them. The following projected data is available:

Project F		Project G
R		R
Initial cost	250 000		250 000
Depreciation per year	50 000		50 000
Net cash inflows:
Year 1	70 000		82 000
Year 2	75 000		82 000
Year 3	82 000		82 000
Year 4	85 000		82 000
Year 5	90 000		82 000

Additional information

1. Project F is expected to have a scrap value of R20 000 (not included in the figures above). No scrap value is expected for Project G.

2. The cost of capital is 15%. Additional information

1. Project F is expected to have a scrap value of R20 000 (not included in the figures above). No scrap value is expected for Project G.

2. The cost of capital is 15%.

Answer 1