Question 1

[20] QUESTION ONE 1.1 Smiles R Us have just made an westment of R420 000 in the latest most advanced dental machine on the market details of which are below Expected useful life 7 years (straight line depreciation Salvage value 240 000 Cost of Capital 10 % Tax rate 30% Expected cash flows after tax are as follows Year Cash Flows Discount factor 1 75 000 0909 2 95 000 0.826 3 125 000 0.751 4 150 000 0.883 5 200 000 0.621 220 000 7 240 000 0.513 0554 Required: 1.1.1 Calculate the payback period for the project 1.1.2 Determine the Net Present Value NPV) of the project (6) (8) 1.2 SNJ Wholesalers Limited is considering opening a new sales branch. Two possible sites have been identified for this purpose Site A has an area of 30 000 square metres I wil require an average investment of RG 000 000 and will produce an average operating profit of R600 000 a year. Site has an area of 20 000 square metres and it will require an an average investment of R4 000 000 and will produce an average operating profit of R500 000 a year Required: 1.21 Determine the accounting rate of return of each investment opportuny 12.2 Which site would you select and why? (4) (2)