Barney Limited has the choice of purchasing one of two machines viz. Machine A and Machine...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Barney Limited has the choice of purchasing one of two machines viz. Machine A and Machine B. Both machines have a five-year life with no residual value. The annual volume of production for both machines is estimated at 600 000 units, which can be sold at R12 per unit. Depreciation is calculated on the machine using the straight-line method. Cost Annual operating cost (excluding depreciation) Fixed costs The cost of capital may be assumed at 14%. MACHINE A R9 000 000 R800 000 R3 600 000 MACHINE B R9 600 000 R720 000 R3 600 000 Required: 1.1.1 Use the net present value method to determine and justify which machine should be selected by the company. (10 marks) 1.1.2 Calculate the accounting rate of return for machine A. (5 marks) 1.1.3 Calculate the payback period for machine B (Years months and days). (4 marks) Required: Calculate the projects Internal Rate of Return (IRR). Mo Salah, owner of Liverpool Limited, was approached by a local dealer in air conditioning units. The dealer proposed replacing the old cooling system of the company with a modern, more efficient system. The cost of the new system was quoted at R140 000, but it would save R30 000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. All capital projects are required to earn at least the firms cost of capital at 10%. (6 marks) Barney Limited has the choice of purchasing one of two machines viz. Machine A and Machine B. Both machines have a five-year life with no residual value. The annual volume of production for both machines is estimated at 600 000 units, which can be sold at R12 per unit. Depreciation is calculated on the machine using the straight-line method. Cost Annual operating cost (excluding depreciation) Fixed costs The cost of capital may be assumed at 14%. MACHINE A R9 000 000 R800 000 R3 600 000 MACHINE B R9 600 000 R720 000 R3 600 000 Required: 1.1.1 Use the net present value method to determine and justify which machine should be selected by the company. (10 marks) 1.1.2 Calculate the accounting rate of return for machine A. (5 marks) 1.1.3 Calculate the payback period for machine B (Years months and days). (4 marks) Required: Calculate the projects Internal Rate of Return (IRR). Mo Salah, owner of Liverpool Limited, was approached by a local dealer in air conditioning units. The dealer proposed replacing the old cooling system of the company with a modern, more efficient system. The cost of the new system was quoted at R140 000, but it would save R30 000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. All capital projects are required to earn at least the firms cost of capital at 10%. (6 marks) Barney Limited has the choice of purchasing one of two machines viz. Machine A and Machine B. Both machines have a five-year life with no residual value. The annual volume of production for both machines is estimated at 600 000 units, which can be sold at R12 per unit. Depreciation is calculated on the machine using the straight-line method. Cost Annual operating cost (excluding depreciation) Fixed costs The cost of capital may be assumed at 14%. MACHINE A R9 000 000 R800 000 R3 600 000 MACHINE B R9 600 000 R720 000 R3 600 000 Required: 1.1.1 Use the net present value method to determine and justify which machine should be selected by the company. (10 marks) 1.1.2 Calculate the accounting rate of return for machine A. (5 marks) 1.1.3 Calculate the payback period for machine B (Years months and days). (4 marks) Required: Calculate the projects Internal Rate of Return (IRR). Mo Salah, owner of Liverpool Limited, was approached by a local dealer in air conditioning units. The dealer proposed replacing the old cooling system of the company with a modern, more efficient system. The cost of the new system was quoted at R140 000, but it would save R30 000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. All capital projects are required to earn at least the firms cost of capital at 10%. (6 marks) Barney Limited has the choice of purchasing one of two machines viz. Machine A and Machine B. Both machines have a five-year life with no residual value. The annual volume of production for both machines is estimated at 600 000 units, which can be sold at R12 per unit. Depreciation is calculated on the machine using the straight-line method. Cost Annual operating cost (excluding depreciation) Fixed costs The cost of capital may be assumed at 14%. MACHINE A R9 000 000 R800 000 R3 600 000 MACHINE B R9 600 000 R720 000 R3 600 000 Required: 1.1.1 Use the net present value method to determine and justify which machine should be selected by the company. (10 marks) 1.1.2 Calculate the accounting rate of return for machine A. (5 marks) 1.1.3 Calculate the payback period for machine B (Years months and days). (4 marks) Required: Calculate the projects Internal Rate of Return (IRR). Mo Salah, owner of Liverpool Limited, was approached by a local dealer in air conditioning units. The dealer proposed replacing the old cooling system of the company with a modern, more efficient system. The cost of the new system was quoted at R140 000, but it would save R30 000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. All capital projects are required to earn at least the firms cost of capital at 10%. (6 marks)
Expert Answer:
Answer rating: 100% (QA)
1 Investment Analysis for Barney Limited 11 Net Present Value NPV Calculation NPV Where CF is the c... View the full answer
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
Posted Date:
Students also viewed these finance questions
-
GoGo Inc. plans to issue a perpetual callable bond that pays 11.4% annual coupons. The current interest rate is 8%. Two years later, there is 15% probability that the interest rate will be 4.5%, 30%...
-
Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $173,478 in overhead. The company has identified the following...
-
Emerald Limited has the choice of purchasing one of two machines viz. Machine X and Machine Y but funding is available to invest in only one of them (if at all). Each machine costs R10 000 000 and a...
-
Describe at least one method by which the organization can reduce change resistance?
-
What are the risks facing foreign firms that do business in Indonesia? What is required to reduce these risks?
-
Explain why the process of cell fusion is necessary to produce monoclonal antibodies used for research.
-
The Phoenix Corporation reported a net loss but a positive cash flow from operations. Further, despite the net loss, the company continued to pay its regular dividend. Discuss why it is possible for...
-
Sal's International Barbershop is a popular haircutting and styling salon near the campus of the University of New Orleans. Four barbers work full-time and spend an average of 15 minutes on each...
-
what is Ford SUPPLIER risks in reference to risk identification, risk assessment and evaluation, selection of appropriate risk management, risk management strategies, implementation of supply chain...
-
1. Are the auditors guilty of malpractice? Explain. 2. What defenses are available to Joker & Wild in this case? Explain what they must prove to successfully assert these defenses. 3. Assume you are...
-
Propose an Apple/Banana Sorter Intelligent system and discuss the Neural Network based possible approach in this scenario. [5 Marks] Sensors Sorter Apples Bananas
-
How is decision-making in organizations best supported by Management Accounting (a descriptive nature) and how should it be supported by Management Accounting (a prescriptive nature)? Is there a gap...
-
Zoe Corporation has the following information for the month of March: Cost of direct materials used in production $17,277 Direct labor 23,689 Factory overhead 35,050 Work in process inventory, March...
-
Brooke, a single taxpayer, works for Company A for all of 2023, earning a salary of $50,000. Note: Round your intermediate and final answers to the nearest whole dollar amount. Problem 8-64 Part b...
-
A proton accelerates from rest in a uniform electric field of 670 N/C. At one later moment, its speed is 1.30 Mm/s (nonrelativistic because v is much less than the speed of light). (a) Find the...
-
An investment of $21700 is accumulated at 5.24% compounded quarterly for three and one-half years. At that time the interest rate is changed to 6.12% compounded monthly. How much is the investment...
-
7. Given the BST below, show the BST that would result after inserting the key of value 10 if splaying is performed starting at the node that was inserted. 30 40 50 100 150 60 200 8. Given the BST...
-
3.16. For a system with non-identical service rates (see Sect. 3.5) and a limit of N jobs in the system (Eq. 3.13), obtain an expression for the mean service time per job, E[Ts], as a function of the...
-
Please refer to the Vivaldi Company (1) review exercise above. Required 1 Show the impact of each event on the accounting equation (recording the purchases of merchandise first in inventory in the...
-
Granados Companys current accounting policies call for the expensing of R&D expenditures in the year incurred. The following table presents the amount of forecasted expenditures from Year 1 to Year...
-
The sale by a shareholder of shares of a company to another shareholder should be recorded by the company (a) True (b) False
-
A \(60 \mathrm{vol} \%\) tributyl phosphate (TBP) in kerosene solvent extracts \(\mathrm{Zr}\left(\mathrm{NO}_{3} ight)_{4}\) from an aqueous solution. Entering solvent is recycled from a solvent...
-
Many extraction systems are partially miscible at high concentrations of solute but close to immiscible at low solute concentrations. At relatively low solute concentrations both McCabe-Thiele and...
-
The aqueous two-phase system in Example 13-3 will be used in a batch extraction. \(7.5 \mathrm{~kg}\) of PEG solution contains protein at mass fraction \(\mathrm{x}_{\mathrm{F}}\). Use \(6.0...
Study smarter with the SolutionInn App