BB Engineering has received a 5-year contract to supply AC units for the Department of Education in Gauteng. The annual returns of the contract are R5 000 000, R6 000 000, R10 000 000, R12 000 000 and R20 500 000 respectively. During a management meeting, some members felt that the AC units could be designed and manufactured at a low cost in house. The Management team set up a meeting with the manufacturing team to see if they can manufacture the AC units than buying sourcing from China. The manufacturing team informs them that it can produce a maximum of 10 000 quarterly. The company will be able to sell to other buyers besides supplying the Department of Education. The total setup cost will be R15 000 000 for manufacturing to begin. Some members felt that it would be more economical to invest in bridge construction equipment in KZN. The project has an initial investment similar to the AC unit plant project with respective retums as follows: R6 000 000, R4 550 000, R7 800 000, R6 700 000, R8 000 000. Question 1 (30 Marks) 1.1.BB Engineering wants to determine if it should invest in setting up an AC manufacturing plant worth R15 000 000 or invest in bridge construction equipment by applying the payback analysis. Calculate the payback period of the investments. Determine the outcome If BB Engineering management requires a 4 year or less recovery period for the initial investment. "Use the template provided and show calculations where necessary PROJECT (AC Manufacturing Plant) Year Revenues 0 1 2 3 4 5 Cumulative PROJECT (Bridge Construction Equipment) Revenues Cumulative Appendix A -|- mu n u n-- 1% 2% 3% 4% 5% 6% . Present Value Tables 7% Formula: PV=1/(1+i)" 8% 9% 10% 11% 12% 13% 14% 15% 0.9901 0.9803 0.9804 0.9709 09612 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.9610 0.9515 0.9420 0.9238 0.8885 0.9057 0.8626 0.8219 0.8880 0.8375 0.7903 0.8548 0.8227 0.7921 0.8163 0.7629 0.7350 0.7084 0.7835 0.7462 0.9327 0.9235 0.8706 0.8131 0.7599 0.7107 0.7473 0.7130 0.7050 0.6663 0.6651 0.6227 0.7938 0.7722 0.7513 0.6830 0.6806 0.6499 0.6209 0.6302 0.5963 0.5645 0.5835 0.5470 0.5132 0.9009 0.8929 0.8850 0.8772 0.8696 0.8116 0.7972 0.7831 0.7695 0.7561 0.7312 0.7118 0.6931 0.6750 0.6575 0.6587 0.6355 0.6133 0.5921 0.5718 0.5935 0.5674 0.5346 0.5066 0.4817 0.4523 0.5428 0.5194 0.4972 0.4803 0.4556 0.4251 0.3996 0.4323 0.3759 0.8535 0.7894 0.9143 0.8368 10 12 0.9053 0.8203 0.8963 0.8043 0.7224 0.6496 0.8874 0.7885 0.7014 0.6246 0.7307 0.7664 0.7026 0.7441 0.6756 13 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 14 0.8700 0.7579 0.6611 0.5775 0.5051 15 0.8613 0.7430 0.6419 0.8528 0.7284 0.6232 17 18 0.8444 0.7142 0.6050 0.8360 0.7002 0.5874 0.4936 0.4155 19 20 0.8195 0.6730 0.5537 21 0.8114 0.6598 0.5375 0.8034 0.6468 0.5219 25 0.1352 27 28 29 0.1159 0.1073 30 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 0.2697 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505 0.3173 0.2875 0.2607 0.2366 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186 0.2858 0.2567 0.4150 0.3677 0.3262 0.4423 0.3878 0.3405 0.2992 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176 0.1883 0.1631 0.1415 0.1229 0.1069 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 0.1696 0.1456 0.1252 0.1078 0.0929 0.3503 0.2959 0.2502 0.2120 0.1799 0.1528 0.1300 0.1108 0.0946 0.0808 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 0.1377 0.1161 0.0981 0.0829 0.0703 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.0611 0.4388 0.3589 0.2942 0.2415 0.1987 0.1637 0.1351 0.1117 0.0926 0.0768 0.0638 0.0531 0.4220 0.3418 0.2775 0.2257 0.1839 0.1502 0.1228 0.1007 0.0826 0.0680 0.0560 0.0462 0.7954 0.6342 0.5067 0.4057 0.3256 0.2618 0.2109 0.1703 0.1378 0.1117 0.0907 0.0738 0.0601 0.7876 0.6217 0.4919 0.3901 0.3101 0.2470 0.1971 0.1577 0.1264 0.1015 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923 0.0736 0.0588 0.0471 0.0378 0.7720 0.5976 0.4637 0.3607 0.2812 0.2198 0.1722 0.1064 0.0839 0.0663 0.0525 0.0417 0.0331 0.7644 0.5859 0.4502 0.3468 0.2678 0.2074 0.1609 0.1252 0.0976 0.0763 0.0597 0.0469 0.0369 0.0291 0.7568 0.5744 0.4371 0.3335 0.2551 0.1956 0.1504 0.0895 0.0693 0.0538 0.0419 0.0326 0.0255 0.7493 0.5631 0.4243 0.3207 0.2429 0.1846 0.1406 0.0822 0.0630 0.0485 0.0374 0.0289 0.0224 0.0174 0.7419 0.5521 0.4120 0.3083 0.2314 0.1741 0.1314 0.0994 0.0754 0.0573 0.0437 0.0256 0.0151 0.3269 0.2843 0.2472 0.2149 0.2307 0.2076 0.2897 0.2575 0.2292 0.2042 0.2633 0.2320 0.2046 0.2394 0.2090 0.1827 0.1807 0.1597 0.1599 0.1401 0.1869 0.1821 0.1625 0.1413 0.1229 0.0491 0.0402 0.0817 0.0659 0.0532 0.0431 0.0349 0.0304 0.0264 0.0230 0.0200 0.0334 0.0196 2014 www.tschools.com present value tables