QUESTION 4 REQUIRED Use the information provided below to calculate the following: 4.1 Payback Period of Project B (answer expressed in years). 4.2 Return on investment of Project A (answer expressed to two decimal places). 4.3 Net Present Value of both projects. 4.4 Internal Rate of Return of Project B (answer expressed to two decimal places). INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be accepted. Initial cost Expected life Project A R1 000 000 5 years Project B R1 000 000 5 years Scrap value (not included in the figures below) R20 000 0. Average annual profit R92 000 R90 000 Expected net cash inflows: R End of year: 1. 240 000 290 000 260 000 290 000 3 280 000 290 000 4 360 000 290 000 5 300 000 290 000 The company estimates that its cost of capital is 12%.

QUESTION 4 REQUIRED Use the information provided below to calculate the following: 4.1 Payback Period of Project B (answer expressed in years). 4.2 Return on investment of Project A (answer expressed to two decimal places). 4.3 Net Present Value of both projects. 4.4 Internal Rate of Return of Project B (answer expressed to two decimal places). INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be accepted. Initial cost Expected life Project A R1 000 000 5 years Project B R1 000 000 5 years Scrap value (not included in the figures below) R20 000 0. Average annual profit R92 000 R90 000 Expected net cash inflows: R End of year: 1. 240 000 290 000 260 000 290 000 3 280 000 290 000 4 360 000 290 000 5 300 000 290 000 The company estimates that its cost of capital is 12%.

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 2 REQUIREDStudy the information given below which was made available by Levis Limited and calculatethe following:2.1 Accounting Rate of Return on average investment of Project A (answerexpressed to two decimal places). 2.2 Net Present Value of Project A (amounts rounded off to the nearest Rand.) 2.3 Internal Rate of Return of Project B (answer expressed to two decimalplaces). INFORMATIONThe following information relates to two capital investment projects, under consideration byLevis Limited for 2021:Project A Project BInitial cost R800 000 R800 000Expected useful life 5 years 5 yearsScrap/Residual value (not included in the figures below) R80 000 0Expected annual profits: R REnd of: Year 1Year 2Year 3Year 4Year 5140 000130 000120 000110 000100 000105 000105 000105 000105 000105 000The company estimates that its cost of capital is 15%. The straight-line method ofdepreciation is used.
Use the information provided to answer the questions.5.1 Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.5.1.1 Calculate the Payback Period of Project A (expressed in years, months and days). 5.1.2Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). 5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). 5.1.4 Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivateyour choice.
Please help answer From Question 3.1 to 3.5 REQUIREDStudy the information provided below and calculate the following:3.1 Payback Period of Project A (answer expressed in years, months and days). 3.2 Accounting Rate of Return (on average investment) of Project B (answer expressed totwo decimal places).3.3 Net Present Value of both projets (amounts rounded off to the nearest Rand). 3.4 Benefit Cost Ratio of Project A (answer expressed to three decimal places). 3.5 Internal Rate of Return of Project B (answer expressed to two decimal places). INFORMATIONThe following information relates to two possible capital expenditure projects being considered by EdamLtd. Because of capital rationing, only one project can be accepted.Project A Project BInitial cost R800 000 R800 000Expected useful life 5 years 5 yearsAverage annual profit R80 000 R80 000Expected net cash inflows: R RYear 1 240 000 240 000Year 2 260 000 240 000Year 3 280 000 240 000Year 4 220 000 240 000Year 5 200 000 240 000The…
2.) Cash flows for two different investment projects are given in the Chart. Cash flows for two investments. Project / Year 0 1 2 3 Project A -2500 1000 1500 1000 Project B -2500 -1000 2500 2000 Calculate the net present values of the projects by assuming the desired profit rate as 10%.
Using the below informtion answer: 5.1 Payback Period of Project Tan (expressed in years, months and days). 5.2 Net Present Value of Project Tan.5.3 Accounting Rate of Return on average investment of Project Tan (expressed to two decimal places). INFORMATIONThe management of Mastiff Enterprises has a choice between two projects viz. Project Cos and Project Tan, each ofwhich requires an initial investment of R2 500 000. The following information is presented to you: PROJECT COS PROJECT TANNet Profit Net ProfitYear R1 130 000 80 0002 130 000 180 0003 130 000 120 0004 130 000 220 0005 130 000 50 000A scrap value of R100 000 is expected for Project Tan only. The required rate of return is 15%. Depreciation is calculatedusing the straight-line method.
1. Accounting Rate of Return on average investment of Project A (expressed to twodecimal places). 1.2 Net Present Value of both projects. 1.3 Internal Rate of Return of Project B (expressed to two decimal places) usinginterpolation
Question 3 A company is considering investing in three projects A, B and C with initial investment of $1,200 and a life of 5 years. The following table indicates the profits that are estimated from each project: After Tax & Depreciation Profits Year Project A Project B Project C 1 300 300 450 2 300 200 450 3 300 400 350 4 300 350 100 5 300 350 100 Total 1,500 1,600 1,450 Required: Calculate the Accounting Rate of Return on initial capital for each project. Calculate the Accounting Rate of Return on average capital for each project. Assuming that financing is available outline three (3) major factors which will influence the investor’s decision to invest. State two (2) drawbacks of the Accounting Rate of Return method of project appraisal.
Question 2- UNIT 2: CAPITAL BUDGETTING PROCESS UNIT 3: CASH FLOW ESTIMATION Dorati Inc. is considering two mutually exclusive projects. Dorati used a 15% required rate of return to evaluate capital expenditure projects. A) Assuming the two projects have the costs and cash flows shown below, determine the NPV for each using a replacement chain. Year Project S Project T 0 –$70,000 –$100,000 1 $50,000 $ 60,000 2 $60,000 $ 70,000 3 $ 80,000 4 $ 90,000 B) Assume in two years Project S will still cost $70,000 and produce the same two years of cash flows. Find the IRR (using 6% & 8% or 10% & 11%) of an investment having initial cash outflow of $3,000. The cash inflows during the first, second, third and fourth years are expected to be $700, $800, $900 and $1,200 respectively
2.1 Calculate the Payback Period of both projects (answers expressed in years, months and days.) Which project would you choose on the basis of payback period? Why?2.2 Calculate the Accounting Rate of Return for both projects (answer expressed to two decimal places).2.3 Calculate the Net Present Value for both projects. (Round off amounts to the nearest Rand.)2.4 Based on your calculations from 2.1 – 2.3, which project should Rothmans Limited choose? Why? .
Question 10 An investment has an initial cost of $410,000 and will generate the net income amounts shown below. This investment will be depreciated straight line to zero over the 4-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 16 percent? Why or why not? Year Net Income 1 $21,000 2 24,800 3 37,500 4 45,000 Group of answer choices Yes; because the AAR is greater than 16 percent No; because the AAR is less than 16 percent Yes; because the AAR is less than 16 percent Yes; because the AAR is equal to 16 percent No; because the AAR is greater than 16 percent
Question 9 Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$50,000 -$25,000 1 $25,000 $10,000 2 $10,000 $10,000 3 $10,000 $10,000 4 $20,000 $5,000 Whichever project you choose, if any, you require a 10 percent return on your investment. If you apply the payback criterion, you will choose investment _____, if you apply the NPV criterion, you will choose investment _____; if you apply the IRR criterion, you will choose investment ____; if you choose the profitability index criterion, you will choose investment ____. Based on your first four answers, which project will you finally choose? Group of answer choices A; A; A; A; A A; B; A; A; A B; A; A; A; A A; B; B; B; B B; B; B; B; B
Problem 5-16 Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 9 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

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