You are the accountant of Isilumko (Pty) Ltd. The operating director wants to tender for a new mining contract of five years. A new excavator machine is needed for the tender. However, the director has little insight into the company's financial situation and asked you to evaluate whether they should tender for the contract or not.

Additional information:

• The initial cost for the excavator in 2020 is R650 000.

• The company's weighted average cost of capital (WACC) is 12%.

Required:

Use the net present value method and the following cash inflows to advise the director whether the company should tender for the contract or not. 

Transcribed Image Text:

Year 2021 2022 2023 2024 2025 Cash flow R420 000 R470 000 R530 000 R590 000 R660 000 Year 2021 2022 2023 2024 2025 Cash flow R420 000 R470 000 R530 000 R590 000 R660 000

Answer rating: 100% (QA)

To evaluate whether Isilumko Pty Ltd should tender for the mining contract we will use the net prese... View the full answer