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Ennis Ltd is considering the purchase of a machine to produce a new product. The machine will cost the business 450,000 and has an expected
Ennis Ltd is considering the purchase of a machine to produce a new product. The machine will cost the business 450,000 and has an expected life of ve years. Annual operating prots from the machine are expected to be as follows: Operating prots E Year 1 59,000 Year 2 88,000 Year 3 69,000 Year 4 37,000 Year 5 29,000 The new machine will be depreciated using the straight-line method and the estimated disposal value at the end of its useful life is 70,000. The accounting rate of return for the new machine is %. (Round your answer to the nearest per cent.) The accounting rate of return is V the required accounting rate of return for new projects and so the machine V purchased. There is a close link between the return on capital employed (ROCE) ratio and the rate of return approach to investment appraisal. O A. annual O B. internal 0 C. accounting 0 D. employed Research evidence shows that there are basically main investment appraisal methods used in practice. O A. six O B. three O C. four D. fiveAl E. Butt (Fisheries) Ltd has recently undertaken net present value analysis of a new trawler. The trawler would require a single cash outow immediately and this would be followed by positive cash inows over its useful life. The discount rate used, based on the cost of capital, was 12% and the net present value of the investment turned out to be negative 55,700. A colleague claims that this nding means that, if the internal rate of return method had been used to undertake the analysis, it would indicate that: 1. The internal rate of return of the project is less than 12%. 2. The investment opportunity should not go ahead. Are the above statements true or false? Statement 1 Statement 2 O A. True False O B. True True 0 C. False True 0 D. False False The internal rate of return can best be described as which ONE of the following? O A. The return required by the managers of the business 0 B. The discount rate at which a set of cash flows has a positive net present value 0 C. The discount rate at which a set of cash flows has a zero net present value 0 D. The rate required to nance an investment
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