Calculate the payback period for each project

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Question - As a financial manager of Xerox Enterprises, you are required to analyse two proposed capital investments, Projects A and B. Each has a cost of R100 000, and the cost of capital for each project is 12%. Depreciation on each project is estimated at R25 000 per year. The projects' expected profit are as follows:

Project A Project B

Year 1 R40 000 R10 000

2 R5 000 R10 000

3 R5 000 R10 000

4 (R15 000) R10 000

Required -

1. Calculate the payback period for each project (In years, months and days).

2. Calculate the NPV for each project.

3. Indicate with a reason which project should be chosen by Xerox Enterprises.

4. Calculate the ARR for project A.

Reference no: EM132639630

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