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ABC Limited is considering investing in two projects, X and Y whose expected original investment...

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Accounting

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ABC Limited is considering investing in two projects, X and Y whose expected original investment in project will be P200 000, the life of project will be 5 years with no scrap Page 2 of 5 values. The expected net cash inflows after deprecation during the life of the projects will be as follows: Details Project X Project Y Initial Investment 200 000 200 000 Expected Economic Life 5 years 5 years Salvage value 0 0 Cash flows after depreciation: End of: Year 1 85 000 30 000 Year 2 100 000 30 000 Year 3 80 000 30 000 Year 4 80 000 30 000 Year 5 40 000 30 000 The projects will be depreciated at the rate of 20% on original cost. The company's cost of capital is estimated at 15%. REQUIRED: a. Calculate the Pay Back Periods for both projects and make a decision. (6 marks) b. Average Rate of Return for both projects and make a decision. (4 marks) C. Net Present Value for both Project and make a decision. (10 marks) d. Calculate Internal Rate of Return for both projects. (5 marks) "NB: Pay particular attention to depreciation and make necessary adjustments

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