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QUESTION 2 INFORMATION: Vista Limited intends purchasing a new machine and has a choice between the following two machines: Equipment A Equipment B Initial cost Expected useful life Scrap value Expected net cash inflows: End of: R220 000 R240 000 5 years 5 years Nil Nil R R Year 1 55 000 70 000 Year 2 60 000 70 000 Year 3 62 000 70 000 Year 4 60 000 70 000 Year 5 70 000 70 000 The company estimates that its cost of capital is 12%.

QUESTION 2 INFORMATION: Vista Limited intends purchasing a new machine and has a choice between the following two machines: Equipment A Equipment B Initial cost Expected useful life Scrap value Expected net cash inflows: End of: R220 000 R240 000 5 years 5 years Nil Nil R R Year 1 55 000 70 000 Year 2 60 000 70 000 Year 3 62 000 70 000 Year 4 60 000 70 000 Year 5 70 000 70 000 The company estimates that its cost of capital is 12%.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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QUESTION 2 INFORMATION: Vista Limited intends purchasing a new machine and has a choice between the following two machines: Equipment A Equipment B Initial cost R220 000 R240 000 Expected useful life 5 years 5 years Scrap value Expected net cash inflows: End of: Nil Nil R R Year 1 55 000 70 000 Year 2 60 000 70 000 Year 3 62 000 70 000 Year 4 60 000 70 000 Year 5 70 000 70 000 The company estimates that its cost of capital is 12%. Required: 2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days). 2.2 Calculate the Accounting Rate of Return (on initial investment) for both equipment A and B. (Answers must be expressed to 2 decimal places). 2.3 Calculate the Net Present Value of each equipment. (Round off amounts to the nearest Rand.) 2.4 Calculate the Internal Rate of Return of Equipment B.
Transcribed Image Text:QUESTION 2 INFORMATION: Vista Limited intends purchasing a new machine and has a choice between the following two machines: Equipment A Equipment B Initial cost R220 000 R240 000 Expected useful life 5 years 5 years Scrap value Expected net cash inflows: End of: Nil Nil R R Year 1 55 000 70 000 Year 2 60 000 70 000 Year 3 62 000 70 000 Year 4 60 000 70 000 Year 5 70 000 70 000 The company estimates that its cost of capital is 12%. Required: 2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days). 2.2 Calculate the Accounting Rate of Return (on initial investment) for both equipment A and B. (Answers must be expressed to 2 decimal places). 2.3 Calculate the Net Present Value of each equipment. (Round off amounts to the nearest Rand.) 2.4 Calculate the Internal Rate of Return of Equipment B.
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