FORMATIVE ASSESSMENT $2[100$ MARKS$]$

QUESTION ONE $(25$ Marks$)$

REQUIRED

$1\mathrm{.}1$Calculate the Payback Period of both machines. $($Answers must be expresses in years, months and days.$)(6$ Marks$)$

$1\mathrm{.}2$ Calculate the Accounting Rate of Return $($on average investment$)$ of Machine A$.(6$ Marks$)$

$1\mathrm{.}3$ Name one advantage of using net present value as a capital investment appraisal technique. $(2$ Marks$)$

$1\mathrm{.}4$ Calculate the Net Present Value of each machine. $($Round off amounts to the nearest Rand.$)(6$ Marks$)$

$1\mathrm{.}5$ Calculate the Internal Rate of Return of Machine B$.(5$ Marks$)$

INFORMATION

Vierra Limited intends purchasing a new machine and has a choice between the following two

machines:

Machine A Machine B

Initial cost R$200000$ R$200000$

Expected useful life $5$ years $5$ years

Scrap value $00$

Expected annual profit: R R

End of: Year $1$

Year $2$

Year $3$

Year $4$

Year $5$

$10000$

$20000$

$25000$

$35000$

$0$

$18000$

$18000$

$18000$

$18000$

$18000$

The company estimates that its cost of capital is $12\%$