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QUESTION - Calculate the payback period of each project and recommend the project that should be selected based on the payback period.
Consider two projects whose cash inflows are not even. Assume that the project costs R205 000. The net cash inflows for each year is as follows:
Year
Project M
Project N
1
R30,000,00
R75,000,00
2
R35,000,00
R95,000,00
3
R65,000,00
R60,000,00
4
R55,000,00
R26,000,00
5
Jimny Limited has a choice of investing in one of two projects. The following details relate to these:
Project BWM
Project AMG
Investment required
R70,000
Expected Economic lifetime
4 years
Minimum required return of return
12%
11%
Net annual cash inflows
1st year
R15,000,00
R23,000,00
2nd year
3rd year
R28,000,00
4th year
R18,000,00
1. Use the net present value method to determine which project Jimny Limited should choose.
2. Calculate the internal rate of return of Project AMG.
3. Calculate the Accounting Rate of Return for Project AMG.
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