Financial management You are required to analyse two proposed capital investments, Projects Alpha and Project...
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Finance
Financial management
You are required to analyse two proposed capital investments, Projects Alpha and Project Beta. Each has a cost of R400 000, and the cost of capital for each project is 15%. Depreciation is calculated on the straight-line method. The projects expected profit are as follows:
Please assist me in understanding how to do these calculations.
1. How do I calculate the payback period for each project (In years, months and days) and how does the depreciation statement fit into the payback calculation, this is my confusion here? Please also explain that to me with the calculations. When I do the Payback calculation for Project Alpha without considering the depreciation then the profits cannot repay the initial investment, it is really confusing me.
2. How do I then calculate the NPV for each project ?
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