Note: Where applicable, use the present value tables provided in APPENDICES $1$ and $2$ that appear

after the formula sheet.

REQUIRED

Use the information provided below to answer the following questions:

$5\mathrm{.}1$ Calculate the Payback Period of the first altemative $($expressed in years, months and days$).(3$ marks$)$

$5\mathrm{.}2$ Calculate the Accounting Rate of Return on initial imvestment of the first altemative

$($expressed to two decimal places$).(4$ marks$)$

$5\mathrm{.}3$ Based on the Nat Present Value, which alternative should be chosen? Why? $($Show the calculations of the

present values as well as the net present valuas.$)(8$ marks$)$

$5\mathrm{.}4$ Calculate the Internal Rate of Return $($expressed to two dacimal places$)$ of the first alternative. Your answer

must include two net present value calculations $($using consecutive rates$/$percentagas$)$ and interpolation.

$(5$ marks$)$

INFORMATION

The management of Torga Limited is considering two investment opportunities:

The first alternative involves the purchase of naw machinery for R$1200000$ which will enable the company to

modernise its production facility. The machinary is expected to have a useful life of five years and no salvage

value is anticipated. On the day Torga Limited purchases the new machinery, it would also pay the supplier R$60$

$000$ for instalation costs. The modernisation is expected to increase efficiency, resulfing in a reduction in annual

cash operating expenses of R$380000.$

The second alternative involves purchasing a truck. The truck costs R$1200000.$ Its useful life is expected to

be five years and a salvage value of R$300000$ is anticipated. Operating the truck will necassitate an increase

of R$60000$ in the company's working capital base immediately upon buying the truck. The working capital

cash outflow is expected to be recovered at the end of the truck's useful life. The truck is expected to generate

R$730000$ per year in additional cash revenuas. The driver's salary and other cash operating expensas are

expected to be R$360000$ per year.

Torga Limited desires a rate of rebum of $12\%.$ The straight$-$line method of depreciation is used. Ignore taxes.