Reference no: EM132659101

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

Project XXX

Investment          R280 000

Scrap value               Nil

POSTGRADUATE DIPLOMA IN MANAGEMENT - ACADEMIC AND ASSESSMENT CALENDAR

REGENT BUSINESS SCHOOL (RBS) July 2020 14

Expected life          5 years

Cost of capital          12%

Expected after tax profits and cash flows

Profits      Cash flows  End of: Rand  Rand

Year 1              23 000        79 000

Year 2              26 000          82 000

Year 3                40 000          96 000

Year 4               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?