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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
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
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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).
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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