QUESTION $5(20$ Marks$)$

Note: Where discount factors are required, use only the present value tables $($Appendix $1$ and $2)$ that

appear after the formula sheet.

$5\mathrm{.}1$

REQUIRED

Use the information given below to calculate the Net Present Value $($NPV$)$ of the project. Ignore

taxes. Calculate the net cash flows for each year, the present values and NPV$.(10$ marks$)$

INFORMATION

Markram Limited is considering the manufacture and sale of economy power inverters. The following

information is available:

$$ New machinery needs to be purchased at a cost of R$8000000.$ A scrap value of R$200000$ is expected.

$$ It was predicted that the project would have a four$-$year life, and the pattern of sales would be as follows:

Year $13500$ units

Year $26500$ units

Year $34100$ units

Year $41500$ units

$$ The selling price and manufacturing costs per unit are expected to be R$2000$ and R$1100$ respectively.

$$ Annual non$-$manufacturing costs of R$100000$ per annum are expected to be paid for each of the four

years.

$$ The company$$s cost of capital is assumed to be $15\%.$

$5\mathrm{.}2$

REQUIRED

Use the information provided below to calculate the following. Ignore taxes.

$5\mathrm{.}2\mathrm{.}1$ Payback Period $($in years, months and days$)(3$ marks$)$

$5\mathrm{.}2\mathrm{.}2$ Accounting Rate of Return on average investment $($expressed to two decimal places$)(4$ marks$)$

$5\mathrm{.}2\mathrm{.}3$ Benefit Cost Ratio $($expressed to two decimal places$).(3$ marks$)$

INFORMATION

A project with an initial cost of R$600000$ is expected to generate net cash flows of R$250000$ per year for five

years. Depreciation is calculated using the straight$-$line method. No scrap value is expected. The required

rate of return is $12\%.$

TOTAL: $100$ MARKS

END OF PAPER

FORMULA SHEET

Gross profit X $100$

Sales $1$

Profit after tax X $100$

Sales $1$

Cost of sales

Average inventory

Accounts receivable X $365$

Credit sales $1$

Accounts payable X $365$

Credit purchases $1$

Operating profit X $100$

Total assets $1$

Profit after tax X $100$

Equity $1$

Profit after tax X $100$

No$.$ of ordinary shares issued $1$

Dividends for the year X $100$

No$.$ of ordinary shares issued $1$

Current assets

Current liabilities

Current assets $$ Inventory

Current liabilities

Total debt X $100$

Total assets $1$

Non$-$current debt X $100$

Equity $1$

Operating profit

Interest expense