Machine A R100 000 5 years R10 000 R 34 000 27 000 32 000 30 000 26 000 Machine B R110 000 5 years 0 R 33 000 33 000 33 000 33 000 33 000 Initial cost Expected economic life Expected disposal/residual value Expected net cash inflows End of: Year 1 Year 2 Year 3 Year 4 Year 5 Depreciation per year 18 000 22 000 The company estimates that its cost of capital is 14%. 2.1 Calculate the payback period for Machine A and B (answers must be expressed in years, months and days). 2.2 Calculate the accounting rate of return (on average investment) for Machine A. (answer rounded off to 2 decimal places).
Machine A R100 000 5 years R10 000 R 34 000 27 000 32 000 30 000 26 000 Machine B R110 000 5 years 0 R 33 000 33 000 33 000 33 000 33 000 Initial cost Expected economic life Expected disposal/residual value Expected net cash inflows End of: Year 1 Year 2 Year 3 Year 4 Year 5 Depreciation per year 18 000 22 000 The company estimates that its cost of capital is 14%. 2.1 Calculate the payback period for Machine A and B (answers must be expressed in years, months and days). 2.2 Calculate the accounting rate of return (on average investment) for Machine A. (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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Transcribed Image Text:QUESTION 2
Machine A
Machine B
Initial cost
R100 000
R110 000
Expected economic life
5 years
5 years
Expected disposal/residual value
R10 000
0
Expected net cash inflows
R
R
End of: Year 1
34 000
33 000
Year 2
27 000
33 000
Year 3
32 000
33 000
Year 4
30 000
33 000
Year 5
26 000
33 000
Depreciation per year
18 000
22 000
The company estimates that its cost of capital is 14%.
2.1
Calculate the payback period for Machine A and B (answers must be expressed in years, months
and days).
2.2
Calculate the accounting rate of return (on average investment) for Machine A. (answer rounded off
to 2 decimal places).
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