3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.) 3.5 Calculate the Internal Rate of Return of Machine B using 17% and 18% (answer rounded off to 2 decimal places).
3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.) 3.5 Calculate the Internal Rate of Return of Machine B using 17% and 18% (answer rounded off to 2 decimal places).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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Please answer only 3.4 and 3.5

Transcribed Image Text:Question 3
Use the information provided below to answer the following questions:
3.1 Calculate the Payback Period of both machines. (Answers must be expressed in years,
months and days.)
3.2 Name one disadvantage of using the payback method to evaluate capital investments.
3.3 Calculate the Accounting Rate of Return (on average investment) of Machine A (answer
rounded off to 2 decimal places).
3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.)
3.5 Calculate the Internal Rate of Return of Machine B using 17% and 18% (answer rounded
off to 2 decimal places).
INFORMATION
Malibu Limited intends purchasing a new machine and has the option of purchasing one of
the following two machines:
Machine A
Machine B
Cost
R350 000
R350 000
Scrap value
Estimated useful life
4 years
4 years
Cost of capital
12%
12%
Net cash flows per year:
R
R
End of:
Year 1
100 000
130 000
Year 2
115 000
130 000
Year 3
145 000
130 000
Year 4
160 000
130 000
Average Annual profit:
R42 500
R42 500
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