QUESTION $5$

$(20$ Marks$)$

Note: Where discount factors are required, use only the four decimals present value tables $($Appendix $1$ and $2)$ that appear after QUESTION $5.$

$5\mathrm{.}1$

REQUIRED

Use the information given below to calculate the following:

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

$(4$ marks$)$

$5\mathrm{.}1\mathrm{.}2$ Accounting Rate of Return on average investment $($expressed to two decimal places$)$

$(5$ marks$)$

$5\mathrm{.}1\mathrm{.}3$ Net Present Value. $($Your answer must include the calculations of the present values and NPV$.)$

$(4$ marks$)$

INFORMATION

Esquire Limited intends purchasing a new machine and the following details relate to this machine:

Purchase price R$1000000$ Expected useful life $4$ years Scrap value $($not included in the figures below$)$ R$200000$ Depreciation per year R$200000$ Minimum required rate of return $15\%$ Expected net cash inflows and net profit: Net cash flows Net profit Year $1$ R$300000$ R$100000$ Year $2$ R$320000$ R$120000$ Year $3$ R$370000$ R$170000$ Year $4?$ R$80000$

$5\mathrm{.}2$ REQUIRED Answer the following questions based on the information provided below: $5\mathrm{.}2\mathrm{.}1$ Calculate the Internal Rate of Return $($expressed to two decimal places$).$ Your answer must include two net present value calculations $($using consecutive cost of capital rates$)$ and interpolation. $(6$ marks$)$

$5\mathrm{.}2\mathrm{.}2$ Based on the IRR should the company consider purchasing the machine? Why? $(1$ mark$)$ INFORMATION KTC Limited is considering an investment in a machine that costs R$400000$ and would result in cash savings of R$120000$ per year for five years. The company$$s cost of capital is $12\%.$