Reference no: EM132490073

QUESTION 1

A company is considering two mutual exclusive projects requiring an initial cash outlay of sh. 52,000 each and with a useful life of 5 years. The company reqired rate of return is 10% and the appropriate corporate tax rate is 50%. The project will be depreciated on a straight line basis. The before depreciation and tax cash flows expected to be generated by the project are as follows;

YEAR        1           2             3            4                   5

               sh         sh              sh           sh            sh

Project A  20,800  20,800  20,800  20,800      20,800

Project B    31,200  15,600   10,400  26,000   26,000

REQUIRED;

Problem 1: Calculate for each project

1. the payback period
2. the average rate of return
3. the net present value
4. profitability index
5. the internal rate of return
6. which project should be accepted? why?

Question 2

XYZ group has the following demand and cost industry.

1. annual requirement 8,000,000 units
2. ordering cost sh.20,000 per order
3. annual holding cost 15% of the purchase price
4. purchase price per unit sh.1,000

Required;

1. the economic order quantity
2. the number of orders needed per year
3. total cost of ordering and holding cost material per year