Calculate the net present value and payback period, Financial Management

Assignment Help:

Sarkozy Ltd is considering the selection of one of a pair of mutually exclusive investment projects. Both would involve purchase of machinery with a life of five years.

Project 1 would generate annual cash flows (receipts less payments) of $200,000; the machinery would cost $556,000 and have a scrap value of $56,000.

Project 2 would generate annual cash flows of $500,000; the machinery would cost $1,616,000 and have a scrap value of $301,000.

Sarkozy Ltd uses the straight line method for providing depreciation. Its cost of capital is 15% pa. Assume that annual cash flows arise on the anniversaries of the initial outlay, that there will be no price changes over the project lives and that acceptance of one of the projects will not alter the required amount of working capital.

You are required to:

(a) Calculate for each project:

(i) The accounting rate of return (ratio, over project life, of average accounting profit to average book value of investment);

(ii) The net present value;

(iii) The internal rate of return (DCF yield) to nearest 1%; and

(iv) The payback period.

(b) State which project you would select for acceptance, if either, giving reasons for your choice of criterion to guide the decision.


Related Discussions:- Calculate the net present value and payback period

Capital budgeting, identify and explain the key stages in the capital inves...

identify and explain the key stages in the capital investment decision-making process and the role of investment appraisal in this processs..

Partial correlation coefficients , In multiple correlation equations we are...

In multiple correlation equations we are often interested in finding out how much of the variation in the dependent variable is explained by one independent variable if all the oth

Determine the cash flow budget - monthly cash disbursement, Your friend Pet...

Your friend Peter is planning to set up a new business which will manufacture and sell wooden tables. The parts that make up the table consist of a wooden table top measuring 1m by

Management information system, Explain the challenges before an E-business ...

Explain the challenges before an E-business management

Enhance or maintain its image and reputation, a) Marketing might be vital t...

a) Marketing might be vital to an organisation such as WHSG for several reasons, including: • The need to be a focus for the right kind of students to the school (there are riva

Financial statement analysis , Case Study based on Financial Statement Anal...

Case Study based on Financial Statement Analysis of Hatsun Agro Private Limited 800x600 Normal 0 false false false EN-IN X-NONE X-NONE

Yield curve strategies, Yield curve strategies take into account the ...

Yield curve strategies take into account the distribution of the maturities of the bonds of the portfolio in order to take advantage of the forecasted movements o

Five cs of obtaining credit, Five Cs of Obtaining Credit The five ...

Five Cs of Obtaining Credit The five crucial parts lenders examine previously issuing credit include: 1. Character.    This is a calculation of the borrower's integrit

Define the types of shareholder, Tactics can be used by company to protect...

Tactics can be used by company to protect itself. Before the bid Types of Shareholder Having the right shareholders on board who can be

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd