Calculate the accounting rate of return for project A. (Answer expressed to 2 decimal places)

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Question 3 (13 marks) The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be accepted. Project A Project B Initial cost R800 000 R920 000 Expected life 5 years 5 years Expected scrap value R40 000 R60 000 Expected net cash inflows: End of year 1 R 320 000 R 400 000 2 280 000 280 000 3 260 000 200 000 4 240 000 200 000 5 220 000 200 000 _____ ________ The company estimates its cost of capital is 12%. Depreciation is calculated using the straight-line method. Required 3.1 Calculate the payback period for project B. (Answer expressed in years and months) (10 marks) 3.2 Calculate the accounting rate of return for project A. (Answer expressed to 2 decimal places) (3 marks)

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