Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shown below: Truck Y Truck Z Net cash flow Net cash flow Year 0 (140 000) (160 000) 1 50 000 85 000 2 60 000 90 000 3 50 000 75 000 4 40 000 65 000 a) Calculate the payback period for each truck. Explain which truck the business should buy and why. b) Calculate the discounted payback for each truck. c) Determine the Net Present Value for each truck. d) Calculate the profitability index for each truck. e) Describe five advantages of the NPV method of capital budgeting
Masego Pty Ltd considers buying a Truck as the business expands. They are considering between
buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck
Z. The discounting factor for the above trucks is 16%. The
below:
Truck Y Truck Z
Net cash flow Net cash flow
Year 0 (140 000) (160 000)
1 50 000 85 000
2 60 000 90 000
3 50 000 75 000
4 40 000 65 000
a) Calculate the payback period for each truck. Explain which truck the business should buy and
why.
b) Calculate the discounted payback for each truck.
c) Determine the
d) Calculate the profitability index for each truck.
e) Describe five advantages of the NPV method of capital budgeting.
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