CAPITAL BUDGETING TECHNIQUESThe financial manager of EM Limited is required to analyse two proposed capital investments,namely Projects N and O. Each has a cost of R100 000, and the cost of capital for each projectis 12%. Depreciation on each project is estimated at R25 000 per year. The projectsexpected net profit (loss) are as follows:YearProject NProject O1R40 000R10 000R5 000R10 000R5 000R10 0004.(R15 000)R10 000Questions:(41.1 Calculate the payback period for each project.1.2 Calculate the net present value for each project.1.3 Determine which project should be chosen based on 1.21.4 Calculate the internal rate of return for project N.

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CAPITAL BUDGETING TECHNIQUES The financial manager of EM Limited is required to analyse two proposed cap namely Projects N and O. Each has a cost of R100 000, and the cost of capita is 12%. Depreciation on each project is estimated at R25 000 per yea expected net profit (loss) are as follows:

CAPITAL BUDGETING TECHNIQUES The financial manager of EM Limited is required to analyse two proposed cap namely Projects N and O. Each has a cost of R100 000, and the cost of capita is 12%. Depreciation on each project is estimated at R25 000 per yea expected net profit (loss) are as follows:

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

Problem 1PS

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Capital Budgeting Techniques Analyze the two independent projects, X and Y. Each project costs $10,000, and the firm’s required rate of return is 12%. The expected net cash flows are as follows: Outflows Inflows Projects Year 1 2 3 4 X -10,000 6,500 3,000 3,000 1,000 Y -10,000 3,500 3,500 3,500 5,500 Required: Calculate for each project: Payback Period IRR NPV PI Give your decision regarding acceptation and rejection of the project. Explain which criteria you based your decision upon and why?
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Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 The benefit of using sensitivity analysis in an investment appraisal would be:
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