REQUIRED Study the information given below and answer the following questions. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes. 5.1 Calculate the Accounting Rate of Return on average investment of the second alternative (expressed to two decimal places). 5.2 Determine which of the two investment opportunities the company should choose by calculating the Net Present Value of each alternative. Your answer must include the calculation of the present values and NPV. 5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The management of Bentall Incorporated is considering two investment opportunities: (5 marks) (9 marks) (6 marks) The first alternative involves the purchase of a new machine for R900 000 which will enable the company to modernise its production facility. The machine is expected to have a useful life of five years and a salvage value of R40 000. Net cash flows of R230 000 per year are anticipated. The second alternative involves purchasing a truck. Purchasing another truck will enable the company to expand its delivery area and increase revenue. The truck costs R900 000. Its useful life is estimated to be five years and a salvage value of R100 000 is anticipated. The truck is expected to generate revenues of R600 000 per year. The driver's salary and other cash operating expenses are forecast at R350 000 per year. Bentall Incorporated desires a rate of return of 14%. The straight-line method of depreciation is used.
REQUIRED Study the information given below and answer the following questions. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes. 5.1 Calculate the Accounting Rate of Return on average investment of the second alternative (expressed to two decimal places). 5.2 Determine which of the two investment opportunities the company should choose by calculating the Net Present Value of each alternative. Your answer must include the calculation of the present values and NPV. 5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The management of Bentall Incorporated is considering two investment opportunities: (5 marks) (9 marks) (6 marks) The first alternative involves the purchase of a new machine for R900 000 which will enable the company to modernise its production facility. The machine is expected to have a useful life of five years and a salvage value of R40 000. Net cash flows of R230 000 per year are anticipated. The second alternative involves purchasing a truck. Purchasing another truck will enable the company to expand its delivery area and increase revenue. The truck costs R900 000. Its useful life is estimated to be five years and a salvage value of R100 000 is anticipated. The truck is expected to generate revenues of R600 000 per year. The driver's salary and other cash operating expenses are forecast at R350 000 per year. Bentall Incorporated desires a rate of return of 14%. The straight-line method of depreciation is used.
Chapter9: Responsibility Accounting And Decentralization
Section: Chapter Questions
Problem 1PA: Use the following information to answer the questions that follow. A. Calculate the operating income...
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Question
Transcribed Image Text:REQUIRED
Study the information given below and answer the following questions. Where discount factors are required
use only the four decimals present value tables that appear after the formula sheet or in the module guide.
Ignore taxes.
5.1 Calculate the Accounting Rate of Return on average investment of the second alternative
(expressed to two decimal places).
5.2 Determine which of the two investment opportunities the company should choose by
calculating the Net Present Value of each alternative. Your answer must include the
calculation of the present values and NPV.
5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal
places). Your answer must include two net present value calculations (using consecutive
rates/percentages) and interpolation.
INFORMATION
The management of Bentall Incorporated is considering two investment opportunities:
(5 marks)
(9 marks)
(6 marks)
The first alternative involves the purchase of a new machine for R900 000 which will enable the company to
modernise its production facility. The machine is expected to have a useful life of five years and a salvage
value of R40 000. Net cash flows of R230 000 per year are anticipated.
The second alternative involves purchasing a truck. Purchasing another truck will enable the company to
expand its delivery area and increase revenue. The truck costs R900 000. Its useful life is estimated to be
five years and a salvage value of R100 000 is anticipated. The truck is expected to generate revenues of
R600 000 per year. The driver's salary and other cash operating expenses are forecast at R350 000 per year.
Bentall Incorporated desires a rate of return of 14%. The straight-line method of depreciation is used.
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