$5\mathrm{.}2$

REQUIRED

Study the information given below to determine whether the company should accept the investment opportunity or not. Motivate your answer by calculating the Accounting Rate of Return on average investment $($expressed to two decimal places$).$

$(5$ marks$)$

INFORMATION

Universal Limited is a manufacturing company and its management is appraising the production and sale of a new product. This would involve the purchase of a new machine with a cost price of R$1200000$ and an expected scrap$/$salvage value of $R200000.$

The net cash flows from the machine are estimated to be $R300000$ per year for eight years. Depreciation is expected to be R$125000$ per year. The company's cost of capital is $18\%.$