REQUIRED Study the information given below and answer the following questions: 5.1 Calculate the Payback Period of Project A (expressed in years, months and days). Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). 5.2 5.3 Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places). 5.4 Refer to yours answers in question 5.3. Which project should be chosen? Why? 5.5 Calculate the Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be chosen. hitial cost Expected useful life Expected scrap value Depreciation per year Expected net profit: End of year 1 2 3 4 5 Project A R900 000 5 years R100 000 R160 000 R 100 000 140 000 150 000 120 000 50 000 Project B R900 000 5 years 0 R180 000 R 90 000 90 000 90 000 90 000 90 000

REQUIRED Study the information given below and answer the following questions: 5.1 Calculate the Payback Period of Project A (expressed in years, months and days). Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). 5.2 5.3 Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places). 5.4 Refer to yours answers in question 5.3. Which project should be chosen? Why? 5.5 Calculate the Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be chosen. hitial cost Expected useful life Expected scrap value Depreciation per year Expected net profit: End of year 1 2 3 4 5 Project A R900 000 5 years R100 000 R160 000 R 100 000 140 000 150 000 120 000 50 000 Project B R900 000 5 years 0 R180 000 R 90 000 90 000 90 000 90 000 90 000

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.4IP

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