Reference no: EM132626106

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?

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?