QUESTION 5 (20 Marks) REQUIRED Answer the questions based on the information supplied. 5.1 REQUIRED Use the information provided below to calculate the following. Where applicable, use the four-decimal present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 5.1.1 Accounting Rate of Return (on initial investment) of Machine A (expressed to two decimal places) (4) 5.1.2 Net Present Value of each machine (5) 5.1.3 Internal Rate of Return of Machine B (expressed to two decimal places) using interpolation. (5) INFORMATION Avery Manufacturers intends purchasing a new machine and has a choice between two machines viz. Machine A or Machine B. The cost of each machine is R3 000 000, with each having an expected useful life of five years. Machine A is expected to have a scrap value of R200 000. No scrap value is expected for Machine B. Avery Manufacturers uses the straight-line method of deprecation. The cost of capital is estimated at 16%. Machine A is expected to generate the following net profits over its useful life: Year 1 R340 000 Year 2 R280 000 Year 3 R550 000 Year 4 R340 000 Year 5 R160 000 Machine B is expected to generate a net profit of R340 000 per year over the five-year period. Ignore taxes. 5.2 REQUIRED Use the information provided below to calculate the cost of the loan (expressed to two decimal places) to SUV Limited. (3 marks) INFORMATION SUV Limited made an application to Kenbank for a long-term loan to finance its expansion. Kenbank approved a loan of R500 000 at a cost of 18%. SUV Limiteds marginal tax rate is 28%. 5.3 REQUIRED Use the information provided below to calculate the cost of the preference share financing (expressed to two decimal places). (3 marks) INFORMATION SUV Limited intends issuing 15% preference shares with at an issue price of R200 each. The flotation costs are estimated at R6 per share.