Contents
Contents
1.1Ca|cu|atethe payback period period for Project A, B and C...............................................................22
1.1Calculate
the payback
...........................................................
(AAR) for each project ................................................33
1.2 Calculate Accounting Rate of Return (AAR)
............................................
2.1 Estimate the additional working working capital capital required required to support the increased sales ................44
............
2.2 Calculate how much the company needs to invest in fixed and current assets ....................5
5
................
15%
3.1 Growing the previous dividend by 15%................................................................................
..6
6
..............................................................................
applying a dividend cover of 4 ...............................................................................66
3.2 Impact of applying
...........................................................................
impact of issuing script dividend on a 1 for 20 basis.......................................................66
3.3 The impact
...................................................
4. List of References .....................................................................................................................6
6
1.1Calculate the the payback for Project and C
C
paybackperiod
Project A, BB and
1.1Calculate
period for
A payback
Project A paybackperiod: Project period: in first
4 years:
Cash in first 4
Cash
R 110.00
R 120.00
R 114.00
R 122.00
110.00 R
120.00 R
114.00 R
122.00
R
in 5th year:
Cash in
Cash
R 148.00
148.00
R
Paybackperiod
Payback
period =
4yrs
4yrs
=
+
+
34
148
148
=
R 466.00
R
R 34.00
R
R 500.00
R
4.23 years
B payback
Project B paybackperiod: Project period: in first
Cash in first 3 years:
Cash
in year 4
4
Cash in
Cash
R 50.00 R
R 110.00
R 220.00
110.00 R
R
R 380.00
R
R 120.00
120.00
R
R
500.00
R
R 270.00
R
Paybackperiod
Payback
period =
=
3yrS
3yrs
+
+
1 20
120
270
=
3.44 years
C payback
Project C paybackperiod: Project period: in first
Cash in first 3 years:
Cash
R 200.00 R
R 140.00
140.00
R
in year 4
4
Cash in
Cash
R 150.00
150.00
R
Paybackperiod
Payback
period =
=
3yrS
3yrs
+
B has has the the shortest shortest Payback
Project B
Paybackperiod
Project period 2
1.2 Calculate
Calculate Accounting Rate of Return for each each project
Rate of
Return (AAR) for
1.2
-AAR:
Project AA -AAR:
Project
Total Cash Flow
Flow:
R110.00
R120.00
R114.00
R122.00
R148.00
R170.00
R180.00
= R
110.00 R
120.00 R
114.00 R
122.00 R
148.00 R
170.00 R
180.00
Less Initial Investment
Project life
Project
77 years
Avg Profit
Avg
AAR Project
Project AA =
AAR
=
Avg Initial Investment
464/7
464/7
500/2
0.2651
0.2651
=
26.51%
R 50.00 R
R 110.00 R
R 220.00 R
R 270.00 R
R 170.00
Cash Flow =
Total Cash
R
Less Initial Investment
