XYZ Corporation is considering a capital budgeting project and requires a detailed analysis. The company has provided you with the following financial information and ratios: Return on Investment (ROI): 15% Payback Period: 3 years Net Present Value (NPV): R50,000 Internal Rate of Return (IRR): 12% Cash Flows are as follows: Year 1: R20 000; Year 2: R30 000; Year 3: R40 000 Required: 1.1 Calculate the initial investment required for the project. 1.2 Discuss the significance of each ratio in evaluating the project. 1.3 Based on the given information, should XYZ Corporation undertake the project? Justify your answer. 1.4 Calculate the ARR for XYZ Corporation. Assume depreciation is calculated on the straight-line method and that the project has a scrap value of R5000.
XYZ Corporation is considering a capital budgeting project and requires a detailed analysis. The company has provided you with the following financial information and ratios:
Payback Period: 3 years
Cash Flows are as follows: Year 1: R20 000; Year 2: R30 000; Year 3: R40 000
Required:
1.1 Calculate the initial investment required for the project.
1.2 Discuss the significance of each ratio in evaluating the project.
1.3 Based on the given information, should XYZ Corporation undertake the project? Justify your answer.
1.4 Calculate the ARR for XYZ Corporation. Assume depreciation is calculated on the straight-line method and that the project has a scrap value of R5000.
Step by step
Solved in 2 steps
