• A new machine it is considering for purchase during 2024.
• The machine would cost R1,000,000, excluding installation costs of R200,000.
• The machine is expected to have a useful life of five years and depreciation per year is estimated at R220,000.
• It is expected that the new machine would generate cash receipts of R540,000 per year and its annual cash outflows would total R220,000.
• At the end of year 3, the machine would require a major overhaul costing R200,000 cash (not included in the figures above).
• A scrap value of R100,000 (not included in the figures above) is anticipated. The cost of capital is15%.

QUESTIONS

	Refer to the investment opportunity for 2024 (the purchase of a new machine) and calculate the following. (Ignore taxes.)
	Accounting Rate of Return on average investment (expressed to two decimal places). 5 marks
	Net Present Value. (Use only present value table 1 discount factors from the module guide to calculate the present values of the net cash flows.) 5 marks
	Internal Rate of Return (expressed to two decimal places) if the net cash flows generated by the machine are R320 000 per year for five years and the scrap value is R50 000.Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (Recommended:Use present value table 2 for R320 000 per year and present value table 1 for R50 000.) 5 marks