Answer to Question #136114 in Finance for Michelle

Question #136114
A company is to invest with the following information.
Investment - R280 000
Scrap value - Nil
Expected life - 5years
Cost of capital - 12%
Cash profits end year 1 - R23 000. Cash Flow - R79 000
Cash profits end year 2 - R26 000. Cash Flow - R82 000
Cash profits end year 3 - R40 000. Cash Flow - R96 000
Cash profits end year 4 - R43 000. Cash Flow - R99 000
Cash profits end year 5 - R14 000. Cash Flow - R70 000

2.1 calculate the accounting rate of return
2.2 calculate the payback period in years, months and days
2.3 if payback cut off is 3 years, should the project be chosen and why
2.4 calculate the net present value of the project
2.5 should the project be accepted on the basis of NPV and why
Expert's answer
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