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QUESTION TWO [25] 2.1 Describe the rationale behind the Internal Rate of Return (IRR)...

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Accounting

QUESTION TWO
[25]
2.1 Describe the rationale behind the Internal Rate of Return (IRR)
22 Power Investments Ldd have fust made an investment of R550000 in a new delivery vehicle. This
(5)
vehicte me be used for deliveries and to generate revenues from such activities.
Additional information:
Expected useful life
Salvage value
Cost of Capital
Tax rate
5 years (straight line depreciation)
R50000
10% after tax
30%
\table[[Year,\table[[Cash Flows],[R]]],[1,220000],[2,200000],[3,120000],[4,110000],[5,50000]]
Required:
2.2.1 Calculate the payback period and the accounting rate of return.
2.2.2 The company requires a payback period of no more than 3 years and a return of at least 30%. On the basis of these criteria, should this project be accepted or rejected. Discuss wt I why not.
2.2.3 Calculate the net present value of the above project and state whether the project should be accepted based on this method.
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