Dabby Dealers Ltd (Dabby Dealers) is expanding its equipment by purchasing a new machine for R756...

  

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Dabby Dealers Ltd ("Dabby Dealers") is expanding its equipment by purchasing a new machine for R756 000. The new machine is expected to decrease costs and the following incremental cash flows are expected: Year Incremental Cash Flows (R) 1 220 000 2 236 000 3 256 000 4 297 000 5 284 000 6 300 000 The entity has a weighted average cost of capital of 15% and an acceptable payback period of 4 years. Required: Evaluate the acceptability of the new machine using the discounted payback period method. Competency Framework Reference: VI-1.1 Identifies management's information needs and the entity's key performance indicators Determines what information is relevant and useful to both management and the governing body for the purposes of decision making and control based on the entity's mission, vision and strategies and competitive position, economic, competitive and operating environments, products and governance structure HMAC330-1-Jul-Dec2021-SA1-BL- V4-03122021 Designs entity budgets which are in accordance with the entity's strategic plans or mandate and appropriate to the level of accountability of the respective responsibility centres taking into account behavioural aspects These behavioural 14 VI-2.1 Designs, prepares, analyses and monitors financial budgets Dabby Dealers Ltd ("Dabby Dealers") is expanding its equipment by purchasing a new machine for R756 000. The new machine is expected to decrease costs and the following incremental cash flows are expected: Year Incremental Cash Flows (R) 1 220 000 2 236 000 3 256 000 4 297 000 5 284 000 6 300 000 The entity has a weighted average cost of capital of 15% and an acceptable payback period of 4 years. Required: Evaluate the acceptability of the new machine using the discounted payback period method. Competency Framework Reference: VI-1.1 Identifies management's information needs and the entity's key performance indicators Determines what information is relevant and useful to both management and the governing body for the purposes of decision making and control based on the entity's mission, vision and strategies and competitive position, economic, competitive and operating environments, products and governance structure HMAC330-1-Jul-Dec2021-SA1-BL- V4-03122021 Designs entity budgets which are in accordance with the entity's strategic plans or mandate and appropriate to the level of accountability of the respective responsibility centres taking into account behavioural aspects These behavioural 14 VI-2.1 Designs, prepares, analyses and monitors financial budgets

Answer rating: 100% (QA)

Computation of Present value Particulars Cash flows Present Value at 15 Net Present Value Year 1 22... View the full answer