Solved by Expert Tutors
Solved by Expert Tutors

Lolo Ltd have just made an investment of R400 000 in a machine.Further details:

• Expected useful life                         5 years (straight line depreciation)

• Salvage value                                  120 000

• Cost of Capital                                 10 %

• Expected profit after tax data is as follows (tax rate is 30%):

Year                                                   Net Profit

1                                                         10 000

2                                                         40 000

3                                                         70 000

4                                                         125 000

5                                                         12 000


2.1     Calculate the Payback Period.                                                                                           (4)

2.2     Calculate the Accounting (Average) rate of return.                                                             (4)

2.3     Lolo Ltd requires a payback period of no more than 4 years and a return of at least

           30%. On the basis of these criteria, should this project be accepted?                                 (4)

2.4     A financial advisor has informed the accountants of Lolo Ltd, that the above methods ignore the time value of money and has suggested they use the NPV method to assess project acceptance. Assist with the calculations and advise whether the project should be accepted?                                                                                                                       (8)

Step-by-step answer

The student who asked this found it Helpful

trices ac magna. Fusce dui lectuacinia pulvi

NPV Capture.JPG

lestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar torto

NPV Capture.JPG

Subscribe to view the full answer

Subject: Business, Finance

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Let our 24/7 Finance tutors help you get unstuck! Ask your first question.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes