Lista Limited intends purchasing a new machine and has a choice between the following two machines: Equipment A Equipment B Initial cost R220 000 R240 000 Expected useful life 5 years 5 years Scrap value Nil Nil Expected net cash inflows: R R End of: Year 1 55 000 70 000 Year 2 60 000 70 000 Year 3 62 000 70 000 Year 4 60 000 70 000 Year 5 70 000 70 000 The company estimates that its cost of capital is 12%. 

Required:

2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days). 

2.2 Calculate the Accounting Rate of Return (on initial investment) for both equipment A and B. (Answers must be expressed to 2 decimal places). 

2.3 Calculate the Net Present Value of each equipment. (Round off amounts to the nearest Rand.) 

2.4 Calculate the Internal Rate of Return of Equipment B. 

Answer rating: 100% (QA)

21 Calculation of payback period of Equipment A Year Cumulative Cash Flows Expected net cash inflows ... View the full answer