(25 Marks) (5 marks) 1.1 1.2 (7 marks) Answer ALL the questions in this section. Study the information given below and answer the following questions: Calculate the Payback period of both machines (answers expressed in years, months and days). Which machine you recommend that the company choose on the basis of the Accounting Rate of Return (on initial investment)? Motivate your answer with the relevant calculations (with returns expressed to two decimal places). Calculate the Internal Rate of Return of Machine B (answer expressed to two decimal places). 1.4 Calculate the Net Present Value of both machines (amounts expressed to the nearest Rand). INFORMATION 1.3 (5 marks) (8 marks) MGM Limited is considering the purchase of a machine and has a choice between Machine A and Machine B. Details of the machines are as follows: Machine A This machine will cost R2 200 000 plus installation costs of R300 000 and is expected to have a useful life of six years. The machine is expected to have a salvage value of R100 000. The machine is expected to increase revenues by R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R50 000 per year. Machine B The cost of this machine is R2 400 000 with no salvage value expected. The machine is expected to generate profits of R200 000 per year. The expected useful life of the machine is six years. MGM Limited uses the straight-line method of depreciation. The company desires a minimum required rate of return of 12% Question 1 (25 marks) Many students had difficulty in determining the net cash flows (Q1.1, 1.3 and 1.4) and net profit (Q1.2). For the net cash flows students should use the cash inflows and cash outflows to determine the value. For the net profit the net cash flow per year and depreciation per year should be used