Dunlop Limited has identified a new machine that it is considering for purchase. The machine would cost R500 000, excluding installation costs of R100 000. The machine is expected to have a useful life of five years. It is expected that the new machine would generate cash receipts of R300 000 per year and its annual cash outflows would total R110 000. At the end of year 3, the machine would require a major overhaul costing R100 000 (not included in the figures above). A scrap value of R50 000 (not included in the figures above) is anticipated. Depreciation is calculated using the straight-line method. The cost of capital is 15%.

Answer the following questions based on the information supplied below. 

Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 6.

6.1 Calculate the Payback Period (expressed in years, months and days). 

6.2 Calculate the Accounting Rate of Return on initial investment (expressed to two decimal places). 

6.3 Compute the Net Present Value.

6.4 Refer to your answer in question 6.3. Should Dunlop Limited purchase the machine? Why? 

6.5 Calculate the Internal Rate of Return (expressed to two decimal places). Your answer must include interpolation.