QUESTION 1 Agro Tech Corporation is considering investing in a new IT system for selling to...
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QUESTION 1 Agro Tech Corporation is considering investing in a new IT system for selling to its clients. The company has identified two new possible systems, which would be suitable for its customers. Only one of the systems can be selected and the directors are looking for guidance on which system would be the best. The company requires a 15% rate of return on projects of this nature. The installation cost per project will be R100 000 each, while systems can be disposed for R200 000 each after five-years life span. Cash flows for Agro Tech Corporation: IT System (Rands) PERIOD 0 2 SYSTEM A 4 000 000 SYSTEM B -3 500 000 1 500 000 1 500 000 R1 800 000 R1 700 000 R1 600 000 R1 500 000 R1 400 000 000 000 100 000 100 000 1 500 000 (20 Marks) 4 years was the same 1 400 000 5 R1 300 000 Required: 1.1 Determine the payback period in years, months and days for both systems 1.2 Based on your calculations in 1.1, which system should Agro Tech Corporation consider? Why? 1.3 Calculate the Net Present Value for both systems. 1.4 Calculate the Accounting Rate of return for System A. 1200 OOD (6 marks) (2 marks) (8 marks) (4 marks) QUESTION 1 Agro Tech Corporation is considering investing in a new IT system for selling to its clients. The company has identified two new possible systems, which would be suitable for its customers. Only one of the systems can be selected and the directors are looking for guidance on which system would be the best. The company requires a 15% rate of return on projects of this nature. The installation cost per project will be R100 000 each, while systems can be disposed for R200 000 each after five-years life span. Cash flows for Agro Tech Corporation: IT System (Rands) PERIOD 0 2 SYSTEM A 4 000 000 SYSTEM B -3 500 000 1 500 000 1 500 000 R1 800 000 R1 700 000 R1 600 000 R1 500 000 R1 400 000 000 000 100 000 100 000 1 500 000 (20 Marks) 4 years was the same 1 400 000 5 R1 300 000 Required: 1.1 Determine the payback period in years, months and days for both systems 1.2 Based on your calculations in 1.1, which system should Agro Tech Corporation consider? Why? 1.3 Calculate the Net Present Value for both systems. 1.4 Calculate the Accounting Rate of return for System A. 1200 OOD (6 marks) (2 marks) (8 marks) (4 marks)
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11 Determine the payback period in years months and days for both systems Payback Period for System A Initial InvestmentR4000000 Cumulative Net Cash F... View the full answer
Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118033890
3rd Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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