QUESTION $5$

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

REQUIRED

Study the information provided below and answer the following questions:

$5\mathrm{.}1$ Calculate the payback period $($expressed in years, months and days$)$

$5\mathrm{.}2$ Explain why you would not recommend payback period to evaluate capital investment

$5\mathrm{.}3$ Calculate the Accounting Rate of Return on average investment $($expressed to two decimal places$)$

$5\mathrm{.}4$ Calculate the Net Present Value. Your answer must include the calculations of the present values and NPV

$5\mathrm{.}5$ Based on the present value of the machine, should Wagner Limited consider purchasing this machine? Why

$5\mathrm{.}6$ Calculate the internal Rate of Return $($expressed to two decimal places$)$ if the net cash flows are R$360000$ per year and there is no scrap value. Your answer must include two net present value calculations $($using consecutive rates$/$percentages$)$ and interpolation

Information

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

Purchase price R$1200000$

Expected useful life $5$ years

Scrap value $($not included in the net cash flows below$)$ R$100000$

Minimum required rate of return $12\%$

Expected net cash flows R

Year $1500000$

Year $2350000$

Year $3280000$

Year $4250000$

Year $5190000$

Expected net profit $($loss$)$ R

Year $1280000$

Year $2130000$

Year $360000$

Year $430000$

Year $5(30000)$