Question 1

PART A

(a) Distinguish between an ordinary annuity and an annuity due.

(b)Shares in Jake Plc currently sell for Rs 2,500 and will be worth Rs 2,975 in 6 years. Calculate the rate of return.

(c )Mr William is currently 55 years old and until the age of 70 years, he wants to guarantee an income of $ 12,000 each year. Assuming a rate of interest of 4% per annum, calculate the starting amount he needs to accumulate.

(d)SBM Ltd has made an interesting offer on loans for all first-time buyers of a house having the following particulars:

Loan amount: Rs 1,500,000

Rate of interest: 8% per annum (Annualised Percentage Rate)

Maturity period: 20 years

Calculate the monthly payment.

PART B

REFER TO IMAGE A

(a) Calculate the payback period for both machines. (answers must be expressed in years, months and days)

(b)Calculate the discounted payback period for both machines (answers in years, months and days)

(c)Calculate the net present value for both machines. (to the nearest Rupee)

(d)Calculate the Profitability Index for Machine ABC.

(e)Calculate the Internal Rate of Return for both machines (Use interpolation to arrive at your final answer.)

(f) Make a brief report to the management to determine whether the company should buy any machine.