Calculate the accounting rate of return and payback period

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Reference no: EM132503503

Gandul Limited has the option to invest in Project XXX. The following information is available on the project: Project XXX

Project XXX

Investment R280 000

Scrap value Nil

Expected life 5 years

Cost of capital 12%

Expected after tax profits and cash flows Profits Cash flows

End of: Rand

Year 5 23 000 79 000

Year 5 26 000 82 000

Year 5 40 000 96 000

Year 5 43 000 99 000

Year 5 14 000 70 000

Required:

Question 1: Calculate the accounting rate of return. (Two decimal places)

Question 2: Calculate the payback period. (In years, months and days)

Question 3: If the payback cut off is three years, should the project be chosen? Why?

Question 4: Calculate the net present value of the project. (Round off amounts to the nearest Rand.)

Question 5: Should the project be accepted on the basis of NPV? Why?

Reference no: EM132503503

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