Question one

(a) The financial manager should identify surplus assets and dispose of them'. Why?

(3Marks)

(b) Marcon Limited is considering purchasing a new truck which is expected to save labouron an existing project. The estimated date for the two machines available on the market are as follows:

Machine AMachine B

GHS 000GHS 000

Initial cost (year 0)115,000115,000

Residual value of machines 20,000 30,000

(year 5)

Annual labour cost savings:

Year 1 40,000 30,000

2 40,000 30,000

3 45,000 30,000

4 20,000 70,000

5 20,000 20,000

Which machine will be selected under the following criteria :

(i) NPV assuming a cost of finance of 10 percent p.a?

(4marks)

(ii) Internal rate of return?

-Steps work out another NPV using a finance cost higher than 10% for both machines which will result in a negative NPV

- This will result in a negative NPV for both machines A and B

- for Machine A pick its NPV @10% and NPV 25% and substitute it into the IRR formula . This will give you a rate

- Repeat step three for Machine B. Compare both rates decision: choose the IRR with the highest rate.

(8marks)

(iii) Payback period(4marks)

(iv) Financial Management tools usually hinges on ones ability to understand or read into recent environmental dynamism and complexities. Sate three (3) of these recent developments or trends.

(2 Marks)

(v) Calculate the future value of the following yearly cash flows at the end of the fifth year assuming a 10% return per annum

Year	Cash flow
0	1,000
1	600
2	400
3	200
4	500

(6 Marks)

[26marks]