5.3 Calculate the Net Present Value of each machine. (5 marks)

5.4 Which machine should be chosen if the time value of money is taken into account? Why? (1 marks)

5.5Calculate the Internal Rate of Return of Machine B using interpolation (expressed to two decimal places), if the net cash flows are R140 000 per year for five years. (5 marks)

INFORMATION Salsa Limited intends purchasing a new machine and has a choice between two machines, of which only one can be chosen.

The following information pertaining to the two machines is available:

Machine A - cost R500 000,Cost of capital 14%, Expected economic life 5 years, Expected disposal value R50 000, Depreciation per year R90 000, Expected net profit: Year 1 R50000, Year 2 R60 000, Year 3 R70 000 ,Year 4 R80 000, Year 5 R20 000

Machine B Initial cost R500 000 Cost of capital 14%, Expected economic life 5 years. Expected disposal value 0 Depreciation per year R100 000, Expected net profit: Year 1 R60 000 Year 2 R60 000 Year 3 R60 000 Year 4 R60 000 Year 5 R60 000.