Reference no: EM132641939

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                                                              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?