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: Initial cost Scrap value Depreciation per year Net profit Year 1 Project A R300 000 R40 000 R52 000 R20 000 Project B R300 000 0 R60 000
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: Initial cost Scrap value Depreciation per year Net profit Year 1 Project A R300 000 R40 000 R52 000 R20 000 Project B R300 000 0 R60 000
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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Transcribed Image Text:5.2
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:
Initial cost
Scrap value
Depreciation per year
Net profit
Year 1
Year 2
Year 3
Year 4
Year 5
Net cash flows
Year 1
Year 2
Year 3
Year 4
Year 5
Additional information
The discount rate used by the company is 12%.
Project A
R300 000
R40 000
R52 000
R20 000
R30 000
R50 000
R60 000
R10 000
Project B
R300 000
Use the information provided below to calculate the Internal Rate of Return (expressed to two
decimal places) using interpolation.
0
R60 000
R90 000
R90 000
R90 000
R90 000
R90 000
Transcribed Image Text:Question 5
Use the information provided to answer the questions.
5.1
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.
Calculate the Payback Period of Project A (expressed in years, months and days).
5.1.1
5.1.2
5.1.3
5.1.4
Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to two
decimal places).
Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand).
Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivate
your choice.
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