Format to asnwer 3.1

Format to answer 3.2 for both VMC and HMC

Format to asnwer 3.3 for both HMC and VMC

IRR Formula

They mentioned that the useful life is 7 years and a residual for both machines is R1 500 000 and that SMT uses the straight line method for depreciation.

REQUIRED Use the information provided below to answer the following questions: 3.1. Calculate the Payback period for the HMC. (3 marks) 3.2. Calculate the Net Present Value for both the HMC and VMC. 3.3. Calculate the Internal Rate of Return (IRR) for the HMC and VMC. (6 marks) (8 marks ) 3.4. Which configuration of the CNC machining centres should SMT purchase, if any? Motivate your answer by referring to the answers obtained in questions 3.3 and 3.4 (3 marks) INFORMATION Southern Manufacturing Tools Limited (SMT) is considering the purchase of a Computer Numerical Control (CNC) machining centre for its operations. Two configurations of the CNC machining centres are available: horizontal CNC machining centre (HMC) and vertical CNC machining centre (VMC). Both the HMC and VMC will require an initial investment of R10 000 000 , will have a useful life of 7 years and a residual value of R1500 000. SMT uses the straight-line method of depreciation. The expected net cash inflows of the VMC are expected to be R2 100000 per year. The expected net cash inflows of the HMC are expected to be R1 900000 in the first year and are expected to grow at 5% each year thereafter. SMT's required rate of return is 12%. Year Yash flow Year 1 Cash inflows Balance outstanding at end year 1 Year 2 Cash inflows Bance outstanding at end year 2 Balance outstanding at end year 3 Year 4 Cash inflows Balance outstanding at end year 4 Bear 5 Cash inflows Balance outstanding at end year 5 Year 6 Cash inflows YearCash flowsDiscount FactorPresent Values, R Vinternal Rate of Return (RR)=Lower rate- ([NPV]A+/([NPV]A+[NPV]A - )196) (1RR=78+(R/(77))18%