QUESTION ONE

Consider a project with initial investment of TZS 18,000,000 and the following annual
cashflows.
Year Cashflow in ‘000’ TZS
1 4,000
2 6,000
3 6,000
4 4,000
5 4,000
Required:
Compute the payback period for the project.

QUESTION TWO
Consider a company that is evaluating whether or not to buy a store in a newly built mall.
The purchase price is TZS 500 million. Assuming the store has an estimated life of 5
years and will need to be completely scraped at the end of that period. The projected net
income in year 1 through 5 is 100 million, 150 million, 50 million, 0 and -50 million
respectively. Compute the AAR of this project.

QUESTION THREE
You are asked to evaluate the following two projects for ABC Ltd using NPV method,
which project would be selected? if a discount rate is 10%.
Year Project X in Project Y (TZS
TZS ‘000’ 000’)
1 -10,000 -22,000
2 4,000 10,000
3 5,000 9,000
4 4,000 6,000
5 3,000 7,000

QUASTION FOUR

The cost of a project is TZS 50,000 and it generates cash inflows of TZS 20,000, TZS
15,000, TZS 25,000, and TZS 10,000 over four years.

Required: Using the present value index method, appraise the profitability of the
proposed investment, assuming a 10% rate of discount.

QUESTION FIVE

A company is considering whether to purchase a new machine. Machines A and B are

available for TZS 80,000 each. Earnings after taxation are as follows:
 Year Machine A Machine B
TZS TZS
1 24,000 8,000
2 32,000 24,000
3 40,000 32,000
4 24,000 48,000
5 16,000 32,000

Required: Evaluate the two alternatives using the following:

(a) Payback method

(b) Rate of return on investment method

(c) Net present value method. You should use a discount rate of 10%.

QUESTION SIX
A company is considering an investment in new machinery. The annual incremental
profits/(losses) relating to the investment are estimated to be:
Year 1 TZS (11,000)
Year 2 TZS 3,000
Year 3 TZS 34,000
Year 4 TZS 47,000
Year 5 TZS 8, 000
Investment at the start of the project would be TZS 175,000. The investment sum,
assuming nil disposal value after five years, would be written off using the straight-line
method. The depreciation has been included in the profit estimates above, which should
be assumed to arise at each year end.
Required:
a) Calculate the net present value (NPV) of the investment at a discount rate of 10%
per annum (the company’s required rate of return). 16
marks
Discount factors at 10% are:
Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683
Year 5 0.621
b) State, on the basis of your calculations, whether the investment is worthwhile.
Justify your statement.