QUESTION 5 (20 Marks) Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTIONS 5.1 REQUIRED Study the information given below and calculate the Net Present Value. (5 marks) INFORMATION Richmond Limited is considering the purchase of a machine. The machine will cost R1 200 000 plus installation costs of R250 000 and it is expected to have a useful life of five years. The machine is expected to generate cash flows of R560 000 per year and is also expected to have a salvage value of R50 000. Annual cash outfiows are expected to amount to R200 000. The company desires a minimum required rate of return of 12%. (3 marks) 5.2 REQUIRED Use the information given below to calculate the following: 5.2.1 Payback period of Project B (answer expressed in years, months and days). 5.22 Accounting Rate of Return (on average investment) of Project A (answer expressed to two decimal places). 5.2.3 Benefit Cost Ratio of Project A (answer expressed to three decimal places). 5.2.4 Internal Rate of Return of Project B (answer expressed to two decimal places). INFORMATION The following data relate to two investment projects, only one of which may be selected: Project A (4 marks) (4 marks) (4 marks) Project B R R 400 000 400 000 15% 15% Initial capital expenditure Cost of capital Net cash flows per year. Year 1 200 000 134 000 134 000 Year 2 140 000 120 000 72 000 Year 3 Year 4 134 000 134 000 0 40 000 Expected resale value at end of year 4 (not included in the figures above) Average annual profit 43 000 34 000