2.2 Malda Ltd have just made an investment of R550 000 in a new delivery vehicle. This vehicle will be used for deliveries and generate revenues from such activities. Further details: • Expected useful life • Salvage value • Cost of Capital 5 years (straight line depreciation) 50 000 10% after tax • Tax rate 30% Year Cash flows 1 220 000 2 200 000 3 120 000 4 110 000 50 000 Roguirod:
2.2 Malda Ltd have just made an investment of R550 000 in a new delivery vehicle. This vehicle will be used for deliveries and generate revenues from such activities. Further details: • Expected useful life • Salvage value • Cost of Capital 5 years (straight line depreciation) 50 000 10% after tax • Tax rate 30% Year Cash flows 1 220 000 2 200 000 3 120 000 4 110 000 50 000 Roguirod:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Required:
2.2.1 Calculate the payback period and the accounting
2.2.2 Malda Ltd requires a payback period of no more than 3 years and a return of at least 30%. Purely
on the basis of these criteria, should this project be accepted. Explain.
2.2.3 The payback period method makes a crucial omission in the calculation, namely the time value
of money. Complete the above computation using a method that accounts for the time value of money?
On the basis of this calculation, should the project be accepted? Explain.
Transcribed Image Text:2.2
Malda Ltd have just made an investment of R550 000 in a new delivery vehicle.
This vehicle will be used for deliveries and generate revenues from such activities.
Further details:
• Expected useful life
• Salvage value
• Cost of Capital
5 years (straight line depreciation)
50 000
10% after tax
• Tax rate
30%
Year
Cash flows
1
220 000
2
200 000
3
120 000
4
110 000
50 000
Roguirod:
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