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Calculate the accounting rate of return

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Reference no: EM133020916

Question - Whema Ltd is interested in expanding its operations into Durban, South Africa and are looking to invest in offices there. The following information has been extracted from the reports relating to the project:

Investment R1,500,000

Average annual profit R450,000

Life span 5 years

Minimum required rate of return 15%

Net Cash flows:

1st year R550,000

2nd year R600,000

3rd year R680,000

4th year R700,000

5th year R780,000

Required -

1. Calculate the accounting rate of return. (Express the answer to two decimal places).

2. Calculate the payback period (Answer in years, months and days).

3. Calculate the net present value (Round off amounts to the nearest Rand).

4. Would the project be acceptable at a cost of capital of 17%? Motivate your answer with an appropriate calculation.

Reference no: EM133020916

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