DiscountFactor0.8330.694Year 30.579Year 4 0.482Required: Ascertain by computing the following for both proposalsDepreciation charge for each projectYear 1Year 2a)b)c)d)Discounted Payback Period (DPBP) and Internal Rate of Return (IRR) of bothDOFI & TOFI projects (Recommend, with reasons which project you would undertake and identifywhether the Finance Director's view would be relevant.Identify at least any four (4) advantages of IRR over DPBP. Ghana beyond Aid & Associates (GBAA) is considering which of these mutually exclusiveprojects it should undertake. GBAA has identified two capital expenditure proposals. Bothproposals are for similar products and both are expected to operate for four years. Only oneproposal can be accepted.The Finance director thinks that the project with the higher NPV should be chosen whereasthe Managing director thinks that the one with the higher IRR should be undertaken,especially as both projects have the same initial outlay and length of life. The companyanticipates a cost of capital of 10% and the net after tax cash flow of the projects are asfollows:Initial InvestmentYear 1Year 2Year 3Year 4Proposal A (S)46,0006,5003,500Year 1Year 213,500(1,500)4,000DiscountFactor0.8330.694Year 30.579Year 4 0.482Required. Accortain by conProfits/(losses)Proposal B ($)46,0004,5002,5004,500Estimated ScrapValue at end of year 4Depreciation is charged on the straight-line basisThe company estimates its cost of capital at 20% per annum.14,0004,000ing the following for 1

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Discount Factor Year 1 0.833 Year 2 0.694 Year 3 0.579 Year 4 0.482 Required: Ascertain by computing the following for both proposals Depreciation charge for each project Discounted Payback Period (DPBP) and Internal Rate of Return (IRR) of both DOFI & TOFI projects Recommend, with reasons which project you would undertake and identify whether the Finance Director's view would be relevant. Identify at least any four (4) advantages of IRR over DPBP- a) b) c) d)

Discount Factor Year 1 0.833 Year 2 0.694 Year 3 0.579 Year 4 0.482 Required: Ascertain by computing the following for both proposals Depreciation charge for each project Discounted Payback Period (DPBP) and Internal Rate of Return (IRR) of both DOFI & TOFI projects Recommend, with reasons which project you would undertake and identify whether the Finance Director's view would be relevant. Identify at least any four (4) advantages of IRR over DPBP- a) b) c) d)

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
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