Workshop CIA | My Assignment Tutor

Workshop CIA II Year Project A Project B Project C 0 (10000) (15000) (20000) 1 5000 5000 10000 2 5000 5000 8000 3 2000 5000 4000 4 1000 10000 2000 5 5000 Required: Calculate the payback period for the three projectsCalculate the accounting rate of return for the three projects.Calculate the Net Present Value for the three projects (by assuming the discount rate is 11%). Solutions to Workshop CIA II Calculate the payback period for the three projects Year Project A Cumulative CF 0 (10000) 1 5000 5000 2 5000 10000 3 2000 12000 4 1000 13000 Payback period for project A: 2 years Year Project B Cumulative CF 0 (15000) 1 5000 5000 2 5000 10000 3 5000 15000 4 10000 25000 5 5000 30000 Payback period for project B: 3 years Year Project C Cumulative CF 0 (20000) 1 10000 10000 2 8000 18000 3 4000 22000 4 2000 24000 Payback period for project C: 2 years + (20000-18000)/4000 = 2.5 years Calculate the accounting rate of return for the three projects. Year Project A Depreciation annual profits 0 (10000) 1 5000 (2500) 2500 2 5000 (2500) 2500 3 2000 (2500) (500) 4 1000 (2500) (1500) Accounting rate of return for project A: [(2500+2500-500-1500)/4]/(10000/2)=15% OR [(5000+5000+2000+1000-10000)/4]/(10000/2)=15% Year Project B Depreciation annual profits 0 (15000) 1 5000 (3000) 2000 2 5000 (3000) 2000 3 5000 (3000) 2000 4 10000 (3000) 7000 5 5000 (3000) 2000 Accounting rate of return for project B: [(2000+2000+2000+7000+2000)/5]/(15000/2)=40% OR [(5000+5000+5000+10000+5000-15000)/5]/(15000/2)=40% Year Project C Depreciation annual profits 0 (20000) 1 10000 (5000) 5000 2 8000 (5000) 3000 3 4000 (5000) (1000) 4 2000 (5000) (3000) Accounting rate of return for project C: [(5000+3000-1000-3000)/4]/(20000/2) = 10% OR [(10000+8000+4000+2000-20000)/4]/(20000/2) = 10% Calculate the Net Present Value for the three projects (by assuming the discount rate is 11%). Year Project A PV 0 (10000) (10000) 1 5000 4504.50 2 5000 4058.11 3 2000 1462.38 4 1000 658.73 Net Present Value for project A: -10000+4504.50+4058.11+1462.38+683.01= 683.73 Year Project B PV 0 (15000) (15000) 1 5000 4504.51 2 5000 4058.11 3 5000 3655.96 4 10000 6587.31 5 5000 2967.28 Net Present Value for project B: -15000+4504.50+4058.11+3655.96+6587.31+2967.28 = 6773.14 Year Project C PV 0 (20000) (20000) 1 10000 9009.01 2 8000 6492.98 3 4000 2924.77 4 2000 1317.46 Net Present Value for project C: -20000+9009.01+6492.98+2924.77+1317.46= -255.78

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