CAPITAL BUDGETING TECHNIQUESThe financial manager of EM Limited is required to analyse two proposed capital investments,namely Projects N and O. Each has a cost of R100 000, and the cost of capital for each projectis 12%. Depreciation on each project is estimated at R25 000 per year. The projectsexpected net profit (loss) are as follows:YearProject NProject O1R40 000R10 000R5 000R10 000R5 000R10 0004.(R15 000)R10 000Questions:(41.1 Calculate the payback period for each project.1.2 Calculate the net present value for each project.1.3 Determine which project should be chosen based on 1.21.4 Calculate the internal rate of return for project N.

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Answered: CAPITAL BUDGETING TECHNIQUES The…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?
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CAPITAL BUDGETING TECHNIQUES The financial manager of EM Limited is required to analyse two proposed cap namely Projects N and O. Each has a cost of R100 000, and the cost of capita is 12%. Depreciation on each project is estimated at R25 000 per yea expected net profit (loss) are as follows: