QUESTION ONE

$(14$ MARKS$)$

INFORMATION

Hulett Limited plans to replace equipment with the latest most efficient equipment. The new equipment can be purchased at a cost of R$2500000$ and a further R$100000$ will be needed to transport the equipment to its facility in Tongaat. The equipment will have a useful life of five years and will be depreciated to a NIL value on a straight$-$line basis. The new equipment will result in an increase in working capital of R$250000.$

The old equipment was purchased four years ago for R$1800000$ at which time it had a useful life of five years. The old equipment was being depreciated on a straight$-$line basis over its useful life to a NIL book value. The old equipment can be sold for R$500000$ and a further R$50000$ will be incurred to remove the old equipment from the facility. When it was acquired, the old equipment resulted in an increase of working capital of R$150000.$

The new equipment will result in an increase in earnings before interest, taxes and depreciation $($EBITDA$)$ as follows:

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