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Gordon Industries is reviewing an investment project with the following details:Initial investment of R1,200,000 and...

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Question

Accounting

Gordon Industries is reviewing an investment project with the following details:

  • Initial investment of R1,200,000 and an expected residual value of R100,000.

Year

Cashflows

Discount factor

Year 1

R160,000

0.909

Year 2

R180,000

0.826

Year 3

R190,000

0.751

Year 4

R140,000

0.683

Year 5

R150,000

0.621

Cost of capital is 10%. Depreciation is R90,000 per year. Tax rate is 30%.

Required:

  1. Calculate each of the following:
    • 1.7.1 Profitability Index (5)
    • 1.7.2 Discounted Payback period (5)

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