6. Consider the following cash-flow diagram: 320 220 120 20 0 1 2 3 4 5 6 EOY 50 100 a. If the MARR is 15% per year, is this project financially profitable? b. Calculate the simple payback period, $\theta$. c. Calculate the discounted payback period, $\theta'$.
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Year 0: -100 Year 1: -100 + 50 = -50 Year 2: -50 + 0 = -50 Year 3: -50 + 20 = -30 Year 4: -30 + 120 = 90 Year 5: 90 + 220 = 310 Year 6: 310 + 320 = 630 Show more…
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5.15 Consider the accompanying project-balance diagram for a typical investment project with a service life of five years. The numbers in the figure indicate the beginning project balances. (a) From the project-balance diagram, construct the project's original cash flows. (b) What is the project's conventional-payback period (without interest)?
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A car manufacturer is to develop a new model to be produced from 1st January 2024 to an indefinite time in the future. To this end, a plot of land is purchased on 1st January 2021 for 15 million. Development costs will be 1 million per quarter from the date of the land purchase until the start of production. All development costs are assumed to be incurred at the beginning of each quarter. It is assumed that from 1st January 2024 onwards, 200 cars will be produced every quarter and that all will be sold in the same quarter. The production cost per car will be 12,000 and all production costs will be incurred at the beginning of each quarter. The sale price per car will be 25,000 and all revenue from sales is assumed to be received at the end of each quarter. Assume an effective rate of interest of 6% p.a.. a) Calculate: i) The discounted payback period of the project. ii) The accumulated value of the project after 10 years. iii) The internal rate of return for the project after 10 years. b) The manufacturer now makes two additional assumptions: 1. Not all cars will be sold in the same quarter in which they are produced: 50% will be sold in the same quarter and 50% in the following quarter. 2. Both production costs as well as the sales price will increase by 4% p.a. effective starting from 1st January 2026. Recalculate ii) and iii) under these two additional assumptions.
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QUESTION 5 Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. REQUIRED Study the information given below and answer the following questions: 5.1 Calculate the Payback Period of Project A (expressed in years, months and days). (3 marks) 5.2 Calculate the Accounting Rate of Return on average investment of Project A (expressed to two decimal places). (4 marks) 5.3 Calculate the Benefit Cost Ratio of both projects (expressed to two decimal places). (7 marks) 5.4 Refer to yours answers in question 5.3. Which project should be chosen? Why? (1 mark) 5.5 Calculate the Internal Rate of Return of Project B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be chosen. Project A Project B Initial cost R900 000 R900 000 Expected useful life 5 years 5 years Expected scrap value R100 000 0 Depreciation per year R160 000 R180 000 Expected net profit: R R End of year 1 100 000 90 000 End of year 2 140 000 90 000 End of year 3 150 000 90 000 End of year 4 120 000 90 000 End of year 5 50 000 90 000 The company estimates that its cost of capital is 12%. Ignore taxes.
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