2.1 Study the information given below and calculate each of the following in respect of the machine:

2.1.1 Net Present Value, if the machine is expected to have a salvage value of R50 000.

2.1.2 Internal Rate of Return, if the machine had no salvage value.

2 Information TKZ Limited is considering the purchase of a machine. The machine will cost R1 000 000 plus installation costs of R200 000 and it is expected to have a useful life of five years. The machine is expected to generate net cash inflows of R300 000 per year. The company desires a minimum required rate of return of 12%.

2.2 Study the information given below and answer the following questions:

2.2.1 Calculate the payback period for project B (answer expressed in years, months and days).

2.2.2 Calculate the accounting rate of return (on average investment) for both projects. (7) Information

The following data relate to two investment projects, only one of which may be selected: Project A Project B R R Initial capital expenditure 200 000 200 000 Net cash inflows per year: Year 1 100 000 67 000 Year 2 70 000 67 000 Year 3 60 000 67 000 Year 4 36 000 67 000 Expected resale value at the end of year 4 20 000 0 Average annual profit 21 500 17 000 Note: The cost of capital is 15%