INFORMATION

Brait Limited intends replacing its plant and equipment. It is considering the following two alternatives:

Alternative $1$

Plant and equipment can be purchased at a cost of R$1600000.$ This equipment will have a useful life of $5$

years and a scrap value of R$160000.$ The equipment will result in a net cash inflow as follows:

Year Net cash inflow

R

$1340000$

$2360000$

$3380000$

$4420000$

$5460000$

Alternative $2$

Plant and equipment can be purchased at a cost of R$1800000.$ This equipment will have a useful life of $4$

years and no scrap value. The equipment will result in a net cash inflow of R$610000$ per year for four years.

The company has a minimum required rate of return of $8\%.$

Depreciation is provided on plant and equipment on a straight$-$line basis.

REQUIRED

$1\mathrm{.}1$ Determine the payback period for Alterative $1$ and Alternative $2.(6$ marks$)$

$($answer should be reflected in years, months and days$)$

$1\mathrm{.}2$ Determine the net present value for both alternatives. $(6$ marks$)$

$($use present value factors as found in your module guides to four decimal places$)$

$1\mathrm{.}3$ Determine the profitability index for both alternatives. $(5$ marks$)$

$($answer to be rounded to two decimal places$)$

$1\mathrm{.}4.$ Calculate the internal rate of return for Alternative $2.(3$ marks$)$

$($use the interpolation method with two consecutive percentages$)$

$1\mathrm{.}5$ Calculate the accounting rate of return on average investment for alternative $1(4$ marks$)$

$($answer to be rounded to two decimal places$)$

$1\mathrm{.}6$ Based in the net present values calculated,