Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000 for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be calculated using the straight-line method. Calculate Benefit Cost ratio(expressed to two decimal places)
Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000 for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be calculated using the straight-line method. Calculate Benefit Cost ratio(expressed to two decimal places)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Question:
Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment
during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000
for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is
expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100
000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be
calculated using the straight-line method. Calculate Benefit Cost ratio(expressed to two decimal places)
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