Application of Management Accounting Techniques (HMAC330-1)

Logistics (Pty) Ltd, a logistics company, is currently looking forward to expanding its business and has two investment opportunities in the current 2023 financial year, namely Truck A and Truck B. Truck A: The capital investment required is R100000. The profit expected in each of the first two financial years after acquiring Truck A is R20000. In the third financial year after the acquisition, the expected profit is R25 000, and then R35 000 in each of the fourth and fifth financial years after the acquisition. Truck B: The capital investment required is R100000. The profit expected in the first financial year after acquiring Truck B is R.25 000. In the second financial year after the acquisition, the expected profit is R35 000, and then R20 000 in the third financial year after the acquisition. Thereafter, R30 000 profit is expected in each of the fourth and fifth financial years after the acquisition. Additional Information: 1. Logistics uses the straight-line depreciation method at 20% per annum. 2. The cost of capital is 9%. 3. The profit for the financial year is computed after the deduction of depreciation. 4. The only non-cash item is depreciation. 5. There is no resale value for either of the trucks. 6. Ignore taxation. REQUIRED: Calculate for each project the: 4.1. Accounting rate of return (ARR) (3 marks) 4.2. Net Present Value (NPV) (7 marks) Round to two decimals where applicable