REQUIRED Study the information given below and answer the following questions: 5 . 1 Determine the Net
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Question:
REQUIRED
Study the information given below and answer the following questions:
Determine the Net Present Values of the two investment alternatives. Show the
calculations of the present values as well as the net present values. marks
If both the net present values were negative, what advice would you offer Mustek Limited? mark
Calculate the Accounting Rate of Return on average investment of Option expressed
to two decimal places marks
Calculate the Internal Rate of Return expressed to two decimal places of Option Your
answer must include two net present value calculations using consecutive
ratespercentages and interpolation. marks
INFORMATION
Mustek Limited is planning a new business venture. With R available funds to invest, it is
investigating two options:
Option is to acquire an exclusive contract to operate vending machines in municipal offices in a city for four
years. The contract requires the firm to pay the city R cash at the beginning. A once off payment
of R is also required at the beginning for transportation and installation. The firm expects cash
revenues from the operation to be R per year and cash expenses to be R per year.
Option is to operate a printing shop in a busy shopping mall. This option would require the company to
spend R for printing equipment that has an estimated useful life of four years, with a R
salvage value. The cash revenues are expected to be R per year and cash expenses are expected
to be R per year.
Mustek Limited uses the straightline method of depreciation. The companys cost of capital is
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