The following information regarding the two machines is available: Machine Black Grey R. Cost price Working...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The following information regarding the two machines is available: Machine Black Grey R. Cost price Working capital required Net operating income before tax - per year (excl depreciation) Realisable value at end of useful life 189 000 156 000 20 000 59 400 10 000 6 years 23 000 62 200 11 000 Useful life 6 years Additional information: Taxation: Tax deductible wear and tear allowances are calculated on the straight-line method at 20% per annum, on the cost of the asset. Normal income tax rate -28%. 1. In determining net operating income, depreciation has not been taken into account. The accounting policy of the company is to provide for depreciation in accordance with wear and tear allowed by SARS. 2. Management requires a 17% after-tax return on all capital investments. Assume that all cash flows occur at the end of each year, except the initial capital outlays, 3. 4. which occur at the beginning of year one. The IRR for machine Black is already correctly calculated to be 16,06% (interpolated 5. between 16% and 18%). REQUIRED: a) Calculate the IRR (internal rate of return) of machine Grey. Show detailed cash flow and taxation calculations to arrive at the net cash flows after tax for all the years. Also show detailed calculations for the NPV (net present value) that you need for the interpolation calculation. Show your interpolation calculation by interpolating between and 18% and 22% to obtain the IRR for machine Grey. (18) b) Advise whether machine Black or Grey should be acquired. Motivate your decision based on your calculations and the IRR's obtained. [Use four decimals for your calculations and round your final answer to two decimals or the nearest rand.] (2) 1261 The following information regarding the two machines is available: Machine Black Grey R. Cost price Working capital required Net operating income before tax - per year (excl depreciation) Realisable value at end of useful life 189 000 156 000 20 000 59 400 10 000 6 years 23 000 62 200 11 000 Useful life 6 years Additional information: Taxation: Tax deductible wear and tear allowances are calculated on the straight-line method at 20% per annum, on the cost of the asset. Normal income tax rate -28%. 1. In determining net operating income, depreciation has not been taken into account. The accounting policy of the company is to provide for depreciation in accordance with wear and tear allowed by SARS. 2. Management requires a 17% after-tax return on all capital investments. Assume that all cash flows occur at the end of each year, except the initial capital outlays, 3. 4. which occur at the beginning of year one. The IRR for machine Black is already correctly calculated to be 16,06% (interpolated 5. between 16% and 18%). REQUIRED: a) Calculate the IRR (internal rate of return) of machine Grey. Show detailed cash flow and taxation calculations to arrive at the net cash flows after tax for all the years. Also show detailed calculations for the NPV (net present value) that you need for the interpolation calculation. Show your interpolation calculation by interpolating between and 18% and 22% to obtain the IRR for machine Grey. (18) b) Advise whether machine Black or Grey should be acquired. Motivate your decision based on your calculations and the IRR's obtained. [Use four decimals for your calculations and round your final answer to two decimals or the nearest rand.] (2) 1261
Expert Answer:
Answer rating: 100% (QA)
ANALYSIS OF CASH FLOW OF MACHINEGREY Initial Cash Flow Cost Price 156000 Working capital 20000 Total ... View the full answer
Related Book For
Applied Equity Analysis and Portfolio Management Tools to Analyze and Manage Your Stock Portfolio
ISBN: 978-1118630914
1st edition
Authors: Robert A.Weigand
Posted Date:
Students also viewed these accounting questions
-
Internal rate of return (LO 4) Harrison Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks. The machine under consideration costs $88,235 and will save...
-
How much should Abigail have in a savings account that is earning 4.25% compounded monthly, if he plans to withdraw $1,550 from this account at the end of every month for 11 years?
-
Internal Rate of Return Concerning IRR: a. Describe how the IRR is calculated, and describe the information this measure provides about a sequence of cash flows. What is the IRR criterion decision...
-
Topic: Google Analytics Submit your answers to each of the 10 questions and the accompanying screenshots. Question 1 Company One wants an overview of the website activity of its users. Provide...
-
A voltaic cell whose cell reaction is 2Fe3+(aq) + Zn(s) 2Fe2+(aq) + Zn2+(aq) has a cell potential of 0.72 V. What is the maximum electrical work that can be obtained from this cell per mole of...
-
1. Identify the ethical issues involved in the case from a consequentialist and deontological perspective (refer to Chapter 2). 2. Identify the management issues involved in the case. For example,...
-
Mind & Motion entered into a real estate purchase contract (REPC) with Celtic Bank to buy a large piece of the banks foreclosed property. Although the county had approved plans to construct...
-
The Barberton Municipal Division of Road Maintenance is charged with road repair in the city of Barberton and the surrounding area. Cindy Kramer, road maintenance director, must submit a staffing...
-
The technical support call centre for a software company has a mean wait time of 210 s, with a standard deviation of 40 s. The management team wants to continue to improve customer satisfaction by...
-
Values for the NASDAQ composite index during the 1,500 days preceding March 10, 2006, can be downloaded from the authors web site. Calculate the one-day 99% VaR and the one-day 99% ES on March 10,...
-
1.) Illustrate the differences between the payments made on two different dates by calculating the required amount of Mexican peso.2.) Specifically recommend one payment date which is considered a...
-
Green Energy Company files a suit against First Bank, claiming that the consideration for a contract between them was inadequate. The court likely will not evaluate the adequacy of consideration...
-
Lyydia works for Consolidated Manufacturing Company under a contract in which she agrees not to disclose any process she uses while in Consolidateds employ. When Lyydia goes into business for...
-
Damba offers to buy a book owned by Lee for $40. Lee accepts and hands the book to Damba. The transfer and delivery of the book constitutes performance. Is this performance consideration for Dambas...
-
Luke practices law without an attorneys license. The state requires a license to protect the public from unauthorized practitioners. Clark hires Luke to handle a legal matter. Luke cannot enforce...
-
Deb owes Jim $5,500. In need of the money, Jim threatens to foreclose on the debt. Deb offers to pay $5,000 immediately to settle Jims claim. Jim agrees. This is a. promissory estoppel. b. a release....
-
Worldview is a culture's orientation toward God, humanity, nature, the universe, life, death, sickness, and other philosophical issues concerning existence. Although worldview is communicated in a...
-
Find the radius of convergence of? 1.2.3 1.3.5 (2n-1) r2n+1 -1
-
Manipulate the WACC and long-term growth forecasting assumptions for Amazon on the chapter spreadsheet's Financial Analysis & Valuation worksheet (cells B147-F157). Use these modeling inputs to...
-
You have just signed off on a legal judgment that will pay you $10,000 immediately, with this amount growing every year in perpetuity by 4% per year. If your discount rate is 12%, what lump-sum...
-
A car dealership has quoted you a monthly payment of $375 for 60 months at an APR of 4.5%. How much are you trying to borrow?
-
Which of the following best describes the underlying rationale for a written investment policy statement (IPS)? A. A written IPS communicates a plan for trying to achieve investment success. B. A...
-
Which of the following is least important as a reason for a written investment policy statement (IPS)? A. The IPS may be required by regulation. B. Having a written IPS is part of best practice for a...
-
Which of the following is least likely to be placed in the appendices to an investment policy statement (IPS)? A. Rebalancing Policy. B. Strategic Asset Allocation. C. Statement of Duties and...
Study smarter with the SolutionInn App