The management of Yogi Woo Wholesalers are considering two mutually exclusive investmentprojects. The following data are available for each project:Project A Project B Disc Factor$ $Cost of plant and equipment 90 000 60 000Salvage value nil nilExpected cash flows:Year 1 55 000 27 500 0,909Year 2 12 500 30 750 0,826Year 3 52 500 34 750 0,751The estimated cost of capital is 10% per annum. The assets’ life is 3 years.4 | P a g eRequired: Calculate for each projecta. The Payback Period (5 marks)b. The Net Present Value (5 marks)c. Briefly describe the advantages and disadvantages of the following capital appraisaltechniques:i. Payback Periodii. Net Present Valueiii. Internal Rate of Returniv. Accounting rate of Return
The management of Yogi Woo Wholesalers are considering two mutually exclusive investment
projects. The following data are available for each project:
Project A Project B Disc Factor
$ $
Cost of plant and equipment 90 000 60 000
Salvage value nil nil
Expected cash flows:
Year 1 55 000 27 500 0,909
Year 2 12 500 30 750 0,826
Year 3 52 500 34 750 0,751
The estimated cost of capital is 10% per annum. The assets’ life is 3 years.
4 | P a g e
Required: Calculate for each project
a. The Payback Period (5 marks)
b. The
c. Briefly describe the advantages and disadvantages of the following capital appraisal
techniques:
i. Payback Period
ii. Net Present Value
iii. Internal
iv. Accounting rate of Return
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