Financial Management Question QUESTION TWO A company is considering an investment proposal to install new milling controls. The project will cost Kshs 50,000,000. The facility has a life expectancy of...

Financial Management Question

QUESTION TWO

A company is considering an investment proposal to install new milling controls. The project will cost Kshs 50,000,000. The facility has a life expectancy of five years and no salvage value. The company’s tax rate is 40%.  The estimated cash flows from the proposed investment proposal are as follows:

Year                             CF Kshs 000

1                                           13,000

2                                           14,000

3                                           18,000

4                                           23,000

5                                           25,000

Compute:

1. 
   
   Accounting Rate of Return


2. 
   
   Discounted payback period at 6% discounting factor


3. 
   
   Net present value at 15% discounting factor and advise management on the project’s feasibility