QUESTION 2

	Machinery A	Machinery B
Initial cost	R 100 000	R 110 000
Expected economic life	5 years	5 years
Expected disposal / residual value	R 10 000	0
Expected net cash inflows End of : 1 year 2 Year 3 Year 4 Year 5 Year	R 34 000 27 000 32 000 30 000 26 000	R 33 000 33 000 33 000 33 000 33 000
Depreciation per year	18 000	22 000

The company estimates that its cost of capital is 14%.

2.1 Calculate the payback period for Machine A and B (answers must be expressed in years, months and days). (5 marks)

2.2 Calculate the accounting rate of return (on average investment) for Machine A. (answer rounded off to 2 decimal places). (4 marks)

2.3 Calculate the net present value of each machine (round off amounts to the nearest Rand). (6 marks)

2.4 Calculate the internal rate of return for Machine B. (5 marks)