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copQuestion5(10 marks; 18 minutes) 0 Col Mojanaga, the Officer Commanding of DoD Mob Centre was approached by a local dealer of air conditioning units. The
copQuestion5(10 marks; 18 minutes) 0 Col Mojanaga, the Officer Commanding of DoD Mob Centre was approached by a local dealer of air conditioning units. The dealer proposed replacing the DoD Mob Centre's old cooling system with a modern, more efficient system. The cost of the new system was quoted at R339 000, but it would save R60 000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. Excited over the possibility of saving R60000 per annum and having a more reliable unit, Col Mojanaga requested an analysis of the project's economic viability from you. All capital projects are required to earn at least the DoD's cost of capital which is 8%. There are no income taxes. Required: 1 Calculate the project's IRR. 18;20% (4) 2 Should the DoD Mob Centre acquire the new cooling system? Explain. Suppose that energy savings are less than claimed. Calculate the minimum annual cash savings that must be realised for the project to earn a rate equal to the firm's cost of capital
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