Use the information provided below to answer the following questions. Where applicable, use the present value provided in APPENDICES 1 and 2 that appear after QUESTION 5. Calculate the Payback Period of both machines (expressed in years, months and days.) 5.1 5.2 5.3 Which machine should be chosen on the basis of payback period only? Why? Calculate the Accounting Rate of Return (on average investment) of Machine A (expressed to two decimal places).
Use the information provided below to answer the following questions. Where applicable, use the present value provided in APPENDICES 1 and 2 that appear after QUESTION 5. Calculate the Payback Period of both machines (expressed in years, months and days.) 5.1 5.2 5.3 Which machine should be chosen on the basis of payback period only? Why? Calculate the Accounting Rate of Return (on average investment) of Machine A (expressed to two decimal places).
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
Problem 1PS
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Transcribed Image Text:QUESTION 5
Use the information provided below to answer the following questions. Where applicable, use the present value tables
provided in APPENDICES 1 and 2 that appear after QUESTION 5.
5.1
5.2
5.3
5.4
5.5
Calculate the Payback Period of both machines (expressed in years, months and days.)
Which machine should be chosen on the basis of payback period only? Why?
Calculate the Accounting Rate of Return (on average investment) of Machine A (expressed to two
decimal places).
Calculate the Net Present Value of each machine (amounts expressed to the nearest Rand.)
Calculate the Internal Rate of Return of Machine B (expressed to two decimal places) using
interpolation.
Transcribed Image Text:INFORMATION
Niterra Limited intends purchasing a new machine and has a choice between the following two machines:
Initial cost
Expected useful life
Scrap value
Expected net profit or net cash flows
Year 1
Year 2
Year 3
Year 4
Year 5
Machine A
R400 000
5 years
0
Net profit
R20 000
R40 000
R50 000
R70 000
APPENDIX 1: PRESENT VALUE OF R1
0
Machine B
R400 000
5 years
0
Net cash flows
R116 000
R116 000
R116 000
R116 000
R116 000
The company estimates that it's cost of capital is 12%. Depreciation is estimated at R80 000 per year.
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