The following data relate to two investment projects, only one of which may be selected Initial capital expenditure Profit per year: Project Luthuli R'000 45 000 Project Madiba R'000 45 000 Year 1 Year 2 Year 3 Year 4 Expected resale value at end of year 4 22 500 9 000 18 000 13 500 9 000 21 500 9 000 23 500 9 000 0 Note: Profit is calculated after deducting straight-line depreciation The cost of capital is 15%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Calculate the payback period for both projects each (year, month and days).
3.2 Calculate the accounting rate of return for each project. 
3.3 Use the net present value (NPV) method to determine which project should be chosen.
3.4 Briefly discuss the merits of using the NPV method

The following data relate to two investment projects, only one of which may be selected
Initial capital expenditure
Profit per year:
Project
Luthuli
R'000
45 000
Project
Madiba
R'000
45 000
Year 1
Year 2
Year 3
Year 4
Expected resale value at end of year 4
22 500
9 000
18 000
13 500
9 000
21 500
9 000
23 500
9 000
0
Note:
Profit is calculated after deducting straight-line depreciation
The cost of capital is 15%
Transcribed Image Text:The following data relate to two investment projects, only one of which may be selected Initial capital expenditure Profit per year: Project Luthuli R'000 45 000 Project Madiba R'000 45 000 Year 1 Year 2 Year 3 Year 4 Expected resale value at end of year 4 22 500 9 000 18 000 13 500 9 000 21 500 9 000 23 500 9 000 0 Note: Profit is calculated after deducting straight-line depreciation The cost of capital is 15%
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