QUESTION $1$

$(25$ Marks$)$

INFORMATION:

Vista Limited intends purchasing a new machine and has a choice between the following two machines:

$\backslash$table$[[,$Equipment A$,$Equipment B$],[$Initial cost$,$R$220000,$R$240000],[$Expected useful life,$5$ years,$5$ years$],[$Scrap value,Nil,Nil$],[$Expected net cash inflows:,R$,$R$],[$End of:$,,],[$Year $1,55000,70000],[$Year $2,60000,70000],[$Year $3,62000,70000],[$Year $4,60000,70000],[$Year $5,70000,70000],[,,]]$

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

Required:

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

$(4$ marks$)$

$1\mathrm{.}2$ Calculate the Accounting Rate of Return $($on initial investment$)$ for both equipment A and B$.$

$($Answers must be expressed to $2$ decimal places$).$

$(5$ marks$)$

$1\mathrm{.}3$ Calculate the Net Present Value of each equipment. $($Round off amounts to the nearest Rand.

$(8$ marks$)$

$1\mathrm{.}4$ Calculate the Internal Rate of Return of Equipment B$.$

$(8$ marks$)$