Capital Budgeting: Capital budgeting is the decision in which company can invest funds of long term nature which provide benefit in long term. Capital budgeting decisions involve huge amount of funds. To calculate: Accounting rate of return , Payback period, Net present value and IRR .

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Chapter 11, Problem 4E

To determine

Concept introduction:

Capital Budgeting: Capital budgeting is the decision in which company can invest funds of long term nature which provide benefit in long term. Capital budgeting decisions involve huge amount of funds.

To calculate:

Accounting rate of return, Payback period, Net present value and IRR.

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Use the information provided to answer the questions.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. QUESTION) Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%. Transcribed Image Text:Number of Periods 1 2 3 4 5 6 7 8 m 10 11 12 13 14 15 1% 2% 0.9901 0.9804 0.9709 3% 3.9020 3.8077…

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