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Medico Limited intends investing in a project during March 2021. The project is expected to cost...

Medico Limited intends investing in a project during March 2021.

The project is expected to cost R2 500 000 with a five-year useful life, and no residual value. The annual volume of production for the project is estimated at 150 000 units, which can be sold for cash at R12 per unit. Depreciation is expected to be R500 000 per year. Annual cash operating costs are as follows:

Variable costs R225 000

Fixed costs R750 000

The cost of capital is 15%. REQUIRED Use the information provided above to calculate the following:

2.1 Net Present Value

2.2 Accounting Rate of Return on average investment (answer expressed to two decimal places)

RATE OF RETURN IS 15% TO CALCULATE NPV AND IRR

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