How often Evaluation and investment appraisal is asked

Where it was asked

• May/Jun 201223 marks
• Oct/Nov 201123 marks
• May/Jun 201123 marks

The questions

1. May/Jun 2012, Q1.11 mark · multiple choice

   Which combination of items does Net Present Value take into consideration?

2. May/Jun 2012, Q3.13 marks

   Three competing software development projects, Project A, Project B and Project C, have the cash flows (in South African rand) shown below over a six-year period. At year 0 (the initial outlay), Project A costs R250 000.00, Project B costs R300 000.00 and Project C costs R200 000.00 (all shown as negative cash flows). In year 1, Project A returns R25 000.00, Project B returns R25 000.00 and Project C returns R40 000.00. In year 2, Project A returns R25 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 3, Project A returns R50 000.00, Project B returns R75 000.00 and Project C returns R40 000.00. In year 4, Project A returns R50 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 5, Project A returns R100 000.00, Project B returns R50 000.00 and Project C returns R80 000.00. In year 6, Project A returns R100 000.00, Project B returns R75 000.00 and Project C returns R80 000.00. Use this cash flow table (Table 3.1) to answer the questions that follow. Using the cash flow figures given for Projects A, B and C, work out the net profit generated by each of the three projects.

3. May/Jun 2012, Q3.21 mark

   Three competing software development projects, Project A, Project B and Project C, have the cash flows (in South African rand) shown below over a six-year period. At year 0 (the initial outlay), Project A costs R250 000.00, Project B costs R300 000.00 and Project C costs R200 000.00 (all shown as negative cash flows). In year 1, Project A returns R25 000.00, Project B returns R25 000.00 and Project C returns R40 000.00. In year 2, Project A returns R25 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 3, Project A returns R50 000.00, Project B returns R75 000.00 and Project C returns R40 000.00. In year 4, Project A returns R50 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 5, Project A returns R100 000.00, Project B returns R50 000.00 and Project C returns R80 000.00. In year 6, Project A returns R100 000.00, Project B returns R75 000.00 and Project C returns R80 000.00. Use this cash flow table (Table 3.1) to answer the questions that follow. Referring to the net profit figures you calculated in question 3.1, state which of the three projects (A, B or C) you would choose to develop, and give a reason for your choice.

4. May/Jun 2012, Q3.34 marks

   Three competing software development projects, Project A, Project B and Project C, have the cash flows (in South African rand) shown below over a six-year period. At year 0 (the initial outlay), Project A costs R250 000.00, Project B costs R300 000.00 and Project C costs R200 000.00 (all shown as negative cash flows). In year 1, Project A returns R25 000.00, Project B returns R25 000.00 and Project C returns R40 000.00. In year 2, Project A returns R25 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 3, Project A returns R50 000.00, Project B returns R75 000.00 and Project C returns R40 000.00. In year 4, Project A returns R50 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 5, Project A returns R100 000.00, Project B returns R50 000.00 and Project C returns R80 000.00. In year 6, Project A returns R100 000.00, Project B returns R75 000.00 and Project C returns R80 000.00. Use this cash flow table (Table 3.1) to answer the questions that follow. Reassess Projects A, B and C using the shortest payback period method, and state which project you would now choose to develop on this basis. Support your answer by referring to each project's payback period and the profit that would be achieved in the year payback is reached.

5. May/Jun 2012, Q3.46 marks

   Three competing software development projects, Project A, Project B and Project C, have the cash flows (in South African rand) shown below over a six-year period. At year 0 (the initial outlay), Project A costs R250 000.00, Project B costs R300 000.00 and Project C costs R200 000.00 (all shown as negative cash flows). In year 1, Project A returns R25 000.00, Project B returns R25 000.00 and Project C returns R40 000.00. In year 2, Project A returns R25 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 3, Project A returns R50 000.00, Project B returns R75 000.00 and Project C returns R40 000.00. In year 4, Project A returns R50 000.00, Project B returns R50 000.00 and Project C returns R40 000.00. In year 5, Project A returns R100 000.00, Project B returns R50 000.00 and Project C returns R80 000.00. In year 6, Project A returns R100 000.00, Project B returns R75 000.00 and Project C returns R80 000.00. Use this cash flow table (Table 3.1) to answer the questions that follow. Using the cash flow data in Table 3.1, calculate the return on investment (ROI) for each of Projects A, B and C.