QUESTION 5 (20 Marks)

REQUIRED

Use the information provided below to calculate the following. Where applicable, use the present value tables

that appear after QUESTION 5.

5.1 Payback period of both machines (expressed in years, months and days.) (6 marks)

5.2 Accounting Rate of Return (on average investment) of Machine A (expressed to two

decimal places). (3 marks)

5.3 Net Present Value of both machines. (6 marks)

5.4 Internal Rate of Return of Machine B (expressed to two decimal places) using interpolation

if the net cash flows are R290 000 per year for four years. (5 marks)

INFORMATION

Trump Limited intends purchasing a new machine and has the option of purchasing Machine A or Machine B.

The following details apply:

Machine A Machine B

Purchase price R800 000 R800 000

Expected useful life 4 years 4 years

Scrap value 0 0

Depreciation per year R200 000 R200 000

Minimum required rate of return 12% 12%

Expected net profit:

End of: Year 1 R20 000 R80 000

Year 2 R60 000 R80 000

Year 3 R140 000 R80 000

Year 4 R120 000 R80 000

REQUIRED Use the information provided below to calculate the following. Where applicable, use the present value tables that appear after QUESTION 5. 5.1 Payback period of both machines (expressed in years, months and days.) (6 marks) 5.2 Accounting Rate of Retum (on average investment) of Machine A (expressed to two decimal places). (3 marks) 5.3 Net Present Value of both machines. (6 marks) 5.4 Internal Rate of Return of Machine B (expressed to two decimal places) using interpolation if the net cash flows are R290 000 per year for four years. (5 marks) INFORMATION Trump Limited intends purchasing a new machine and has the option of purchasing Machine A or Machine B. The following details apply