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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


Required:

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)

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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
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Subject: Business, Finance

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