Calculate the Payback Period of Project A (expressed in years, months and days) Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places). Which project should be chosen? Why? Calculate the Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.
Calculate the Payback Period of Project A (expressed in years, months and days) Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places). Which project should be chosen? Why? Calculate the Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Calculate the Payback Period of Project A (expressed in years, months and days)
Calculate the Accounting Rate of
to two decimal places).
Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places).
Which project should be chosen? Why?
Calculate the
answer must include two
rates/percentages) and interpolation.
Transcribed Image Text:INFORMATION
The following information relates to two capital expenditure projects. Because of capital rationing, only one
project can be chosen.
Initial cost
Expected useful life
Expected scrap value
Depreciation per year
Expected net profit:
End of year
1
2
3
4
5
The company estimates that its cost of capital is 12%. Ignore taxes.
Project A
R900 000
5 years
R100 000
R160 000
R
100 000
140 000
150 000
120 000
50 000
Project B
R900 000
5 years
0
R180 000
R
90 000
90 000
90 000
90 000
90 000
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