QUESTION ONE [25 marks ] Gogo Limited has just made an investment of R390 000 in a new machine. Details of the machine are as follows:

Expected useful life 5 years (straight line depreciation) Salvage value 10 000 (sold as scrap metal) Cost of capital 10 % The tax rate is 30%

Expected cash flows are as follows: Year

1	80 000
2	120 000
3	100 000
4	110 000
5	90 000

Required: ( Please show all calculations )

1.1 Calculate the Payback Period (5 marks) 1.2 Determine the Accounting / Average Rate of Return (ARR) (5 marks ) 1.3 Gogo Limited requires a payback period of no more than 4 years and a return of at least 25%. On the basis of these criteria, should this project be accepted? Explain your answer. (4 marks ) 1.4 Calculate the Net Present Value for the project. Should the project be accepted on this basis? Explain your answer. (7 marks ) 1.5 To make your ultimate decision, which method will you choose? Why? (4 marks)