Sirikunga Limited, with a cost of capital of 12% is considering two projects for possible investment, Both projects have life spans of four years and are similar in all material respect. Due to capital rationing, only one project may be implemented. profit after depreciation: Project A Project B N$'000 N$'000 initial investment 46 000 46 000 Year 1 26 500 24 500 Year 2 13 500 12 500 Year 3 13 500 4 500 Year 4 (1 500) 14 500 Estimated scrap value at the end of the year 4000 4000 Depreciation is charged on the straight line basis. Required: (a) Calculate the following for both proposals: (i) the discounted payback period (round off your answer to one decimal place) (ii) The net present value (iii) The accounting rate of return on initial investment ( round off your answer to one decimal place) (iv) If the two projects are mutually exclusive, which project should be chosen and why
Sirikunga Limited, with a cost of capital of 12% is considering two projects for possible investment, Both projects have life spans of four years and are similar in all material respect. Due to capital rationing, only one project may be implemented. profit after depreciation: Project A Project B N$'000 N$'000 initial investment 46 000 46 000 Year 1 26 500 24 500 Year 2 13 500 12 500 Year 3 13 500 4 500 Year 4 (1 500) 14 500 Estimated scrap value at the end of the year 4000 4000 Depreciation is charged on the straight line basis. Required: (a) Calculate the following for both proposals: (i) the discounted payback period (round off your answer to one decimal place) (ii) The net present value (iii) The accounting rate of return on initial investment ( round off your answer to one decimal place) (iv) If the two projects are mutually exclusive, which project should be chosen and why
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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Sirikunga Limited, with a cost of capital of 12% is considering two projects for possible investment, Both projects have life spans of four years and are similar in all material respect. Due to capital rationing, only one project may be implemented.
profit after
| Project A | Project B | |
| N$'000 | N$'000 | |
| initial investment | 46 000 | 46 000 |
| Year 1 | 26 500 | 24 500 |
| Year 2 | 13 500 | 12 500 |
| Year 3 | 13 500 | 4 500 |
| Year 4 | (1 500) | 14 500 |
| Estimated scrap value at the end of the year | 4000 | 4000 |
Depreciation is charged on the straight line basis.
Required:
(a) Calculate the following for both proposals:
(i) the discounted payback period (round off your answer to one decimal place)
(ii) The
(iii) The accounting rate of
(iv) If the two projects are mutually exclusive, which project should be chosen and why
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