Reference no: EM132634786

Grandul limited has the option to invest in Project XXX. The following is available on the project:

Project XXX

Investment R280 000

Scrap value NIL

Expected life 5years

Cost of capital 12%

Expected after tax profits and cash flow

                    Profits           Cash flows

End of:          Rand             Rand

Year 1.           23 000          79 000

Year 2.            26 000         82 000

Year 3           40 000         96 000

Year 4           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? Why?

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 basis of NPV? /Why?