Study the information given below and calculate the Net Present Value. (5 marks)

INFORMATION

Richmond Limited is considering the purchase of a machine. The machine will cost R1 200 000 plus installation

costs of R250 000 and it is expected to have a useful life of five years. The machine is expected to generate

cash flows of R560 000 per year and is also expected to have a salvage value of R50 000. Annual cash outflows

are expected to amount to R200 000. The company desires a minimum required rate of return of 12%.

5.2 REQUIRED

Use the information given below to calculate the following:

5.2.1 Payback Period of Project B (answer expressed in years, months and days). (3 marks)

5.2.2 Accounting Rate of Return (on average investment) of Project A (answer expressed to two

decimal places). (4 marks)

5.2.3 Benefit Cost Ratio of Project A (answer expressed to three decimal places). (4 marks)

5.2.4 Internal Rate of Return of Project B (answer expressed to two decimal places). (4 marks)

INFORMATION

The following data relate to two investment projects, only one of which may be selected:

Project A Project B

RR

Initial capital expendiTURE400000 400 000

Cost of capital 15% 15%

Net cash flows per year:

Year 1200000 134 000

Year 2140 000 134 000

Year 3120 000 134 000

Year 472000 134 000

Expected resale value at end of year 4 (not included in the figures above)

40000 0

Average annual profit 43000 34 000

Use the information given below to calculate the value of closing inventory as at 31 March 2020 and value of issues to production for March 2020 using the:

2.1.1 Weighted average cost method. (5 marks)

2.1.2 First-in-first-out (FIFO) method. (5 marks)

INFORMATION The following transactions of Dreamcoat Manufacturers, which uses the periodic inventory system, took place during March 2020 in respect of a component used in production:

March

01Opening inventory4000 units @ R20 per unit

16Purchased from a supplier15000 units @ R21 per unit

17Returned to the supplier (purchased on 16 March 2020)2000 units

20Purchased from supplier3000 units @ R22 per unit

31Issues to production during March 202016000 UNITS