Eva Limited is considering the purchase of a machine. The company desires a minimum required rate of return of 12%. The machine will cost R2 200000 plus installation costs of R200 000 and is expected to have a useful life of six years. It is anticipated that the machine will have a salvage value of R100 000 . The machine is expected to increase revenues by R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will also require maintenance and repairs averaging R50 000 per year. Depreciation is estimated to be R400 000 per year. 4.2 REQUIRED Study the information given below and calculate the Accounting Rate of Return on initial investment (expressed to two decimal places) of each project. (6 marks) INFORMATION The following data relate to two investment projects, only one of which may be selected: Note: Depreciation is calculated using the straight-line method. The cost of capital is 15%. 4.3 REQUIRED Use the capital asset pricing model to calculate the cost of the ordinary shares from the information provided below. (5 marks) INFORMATION The financial managers of Computex have the following information at their disposal: The risk-free rate is presently 14%. The company's beta coefficient is 0.90. The return on the JSE's overall index is presently 20.6%. Eva Limited is considering the purchase of a machine. The company desires a minimum required rate of return of 12%. The machine will cost R2 200000 plus installation costs of R200 000 and is expected to have a useful life of six years. It is anticipated that the machine will have a salvage value of R100 000 . The machine is expected to increase revenues by R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will also require maintenance and repairs averaging R50 000 per year. Depreciation is estimated to be R400 000 per year. 4.2 REQUIRED Study the information given below and calculate the Accounting Rate of Return on initial investment (expressed to two decimal places) of each project. (6 marks) INFORMATION The following data relate to two investment projects, only one of which may be selected: Note: Depreciation is calculated using the straight-line method. The cost of capital is 15%. 4.3 REQUIRED Use the capital asset pricing model to calculate the cost of the ordinary shares from the information provided below. (5 marks) INFORMATION The financial managers of Computex have the following information at their disposal: The risk-free rate is presently 14%. The company's beta coefficient is 0.90. The return on the JSE's overall index is presently 20.6%
