Ajax Corp is considering investing in a project with the following forecasted details:Initial amount invested...
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Accounting
Ajax Corp 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 | 0.91 |
Year 2 | R120,000 | 0.83 |
Year 3 | R160,000 | 0.75 |
Year 4 | R80,000 | 0.68 |
Year 5 | R90,000 | 0.62 |
Assuming that the cost of capital for the company is 10%. The cash flows are after tax and depreciation is charged at R40,000 per year. Tax rate is 30%.
Required:
- Calculate each of the following:
- 1.1.1 Accounting Rate of Return (5)
- 1.1.2 Payback period (5)
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