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Evans Corp is planning to invest in a project with the following details:Initial investment of...

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Question

Accounting

Evans Corp is planning to invest in a project with the following details:

  • Initial investment of R900,000 and an expected residual value of R80,000.

Year

Cashflows

Discount factor

Year 1

R140,000

0.909

Year 2

R160,000

0.826

Year 3

R170,000

0.751

Year 4

R120,000

0.683

Year 5

R130,000

0.621

Cost of capital is 10%. Depreciation is R70,000 per year. Tax rate is 30%.

Required:

  1. Calculate each of the following:
    • 1.5.1 Accounting Rate of Return (5)
    • 1.5.2 Payback period (5)

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