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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?
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