QUESTION $4(20$ Marks$)$

$4\mathrm{.}1$

REQUIRED

Calculate the following from the information given below:

$4\mathrm{.}1\mathrm{.}1$ Payback Period $($expressed in years, months and days$).(3$ marks$)$

$4\mathrm{.}1\mathrm{.}2$ Accounting Rate of Return on initial investment $($expressed to two decimal places$).(4$ marks$)$

$4\mathrm{.}1\mathrm{.}3$ Internal Rate of Return $($expressed to two decimal places$)$ if the net cash inflows are

R$400000$ per year for five years. Your answer must include two net present value

calculations $($using consecutive rates$/$percentages$)$ and interpolation. $(5$ marks$)$

INFORMATION

Fego Limited is considering the purchase of Machine X$,$ details of which are provided below:

Year R

Initial investment $0(1500000)$

Net cash inflows: $1480000$

$2600000$

$3380000$

$4272000$

$5360000$

The cost of capital is $12\%.$ Depreciation is calculated using the straight$-$line method. No scrap value is expected for the machine. Ignore taxes.

$4\mathrm{.}2$ REQUIRED

Study the information given below and determine, based on its Net Present Value $($NPV$),$ whether

the investment should be favourably considered for acceptance or not. $(8$ marks$)$

INFORMATION

Umdloti Ltd plans an investment in non$-$current assets costing R$3000000.$ The non$-$current assets are

expected to have a four$-$year life, with the following net profits anticipated:

Year $1$ R$350000$

Year $2$ R$750000$

Year $3$ R$200000$

Year $4$ R$170000$

Working capital amounting to R$200000$ will be required at the start of the project. All the working capital will be recovered at the end of year $4.$ The expected scrap value of the non$-$current assets is R$400000.$ The cost of capital is $12\%.$ Ignore taxes.