INFORMATION Niterra Limited intends purchasing a new machine and has a choice between the following two machines: Machine A Machine B Initial cost R400 000 R400 000 Expected useful life 5 years 5 years Scrap value 0 0 Expected net profit or net cash flows Net profit Net cash flows Year 1 R20 000 R116 000 Year 2 R40 000 R116 000 Year 3 R50 000 R116 000 Year 4 R70 000 R116 000 Year 5 0 R116 000 The company estimates that its cost of capital is 12%. Depreciation is estimated at R80 000 per year.

Use the information provided above to answer the following questions.

Calculate the Accounting Rate of Return (on average investment) of Machine A (expressed to two decimal places). 5.3 (4 marks) 5.4 Calculate the Net Present Value of each machine (amounts expressed to the nearest Rand.) (6 marks)