Question: Question 5 Answer the questions from the information provided. 5.1 Calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and
Question 5
Answer the questions from the information provided.
5.1 Calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.
5.1.1 Payback Period (expressed in years, months and days.) (3 marks)
5.1.2 Accounting Rate of Return on average investment (expressed to two decimal places) (5 marks)
5.1.3 Net Present Value (4 marks)
5.1.4 Internal Rate of Return (expressed to two decimal places) using interpolation, if the net cash flows were R300 000 per year for five years (6 marks)
5.2 After considering your calculations above that take the time value of money into account, should the machine be considered for purchase? Motivate your answer.
INFORMATION
Liberty Limited intends purchasing a new machine and the following details relate to this machine:
| Purchase price | R1 000 000 |
| Expected useful life | 5 years |
| Scrap value | 0 |
| Depreciation per year | R200 000 |
| Minimum required rate of return | 12% |
| Expected net profit: | R |
| Year 1 | 150 000 |
| Year 2 | 160 000 |
| Year 3 | 100 000 |
| Year 4 | 50 000 |
| Year 5 | 40 000 |
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