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Tesla Motors is considering investing in a project with the following forecasted details: Initial amount invested...

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Accounting

Tesla Motors is considering investing in a project with the following forecasted details: Initial amount invested is R500,000 and expected residual value is R40,000.

Year

Cashflows

Discount factor

Year 1

R100,000

0.909

Year 2

R120,000

0.826

Year 3

R150,000

0.751

Year 4

R180,000

0.683

Year 5

R200,000

0.621

Assuming that the cost of capital for the company is 12%. The cash flows are after tax and depreciation is charged at R50,000 per year. Tax rate is 30%.

Required:

  1. Calculate each of the following: 1.1.1. Accounting Rate of Return (5) 1.1.2. Payback period (5)

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