INFORMATION Excerpts of financial data of Markram Limited for 2022 are as follows: Statement of Comprehensive Income for the year ended 31 December 2022 R Sales 6 000 000 Cost of sales 4 000 000 Opening inventory 200 000 Purchases ? Closing inventory 500 000 Operating profit 1 200 000 Interest expense 200 000 Profit before tax 1 000 000 Company tax 270 000

Statement of Financial Position as at 31 December 2022 R Non-current assets 3 500 000 Inventories 500 000 Accounts receivable 1 400 000 Cash 2 000 Bank overdraft 30 000 Ordinary share capital 940 000 Retained earnings 132 000 Long-term loan 3 600 000 Accounts payable 700 000 Additional information Ninety percent (90%) of the sales is on credit. All purchases are on credit. Credit terms to debtors are 60 days and credit terms from suppliers are 90 days.

QUESTION 5 (20 MARKS) Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after the formula sheet. REQUIRED Study the information given below and answer the following questions: 5.1 Determine the Net Present Values of the two investment alternatives. (Show the calculations of the present values as well as the net present values.) (9 marks) 5.2 If both the net present values were negative, what advice would you offer Mustek Limited? (1 mark) 5.3 Calculate the Accounting Rate of Return on average investment of Option 2 (expressed to two decimal places). (5 marks) 5.4 Calculate the Internal Rate of Return (expressed to two decimal places) of Option 1. Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION Mustek Limited is planning a new business venture. With R3 000 000 available funds to invest, it is investigating two options: Option 1 is to acquire an exclusive contract to operate vending machines in municipal offices in a city for four years. The contract requires the firm to pay the city R2 000 000 cash at the beginning. A once off payment of R300 000 is also required at the beginning for transportation and installation. The firm expects cash revenues from the operation to be R1 800 000 per year and cash expenses to be R1 000 000 per year. Option 2 is to operate a printing shop in a busy shopping mall. This option would require the company to spend R2 700 000 for printing equipment that has an estimated useful life of four years, with a R400 000 salvage value. The cash revenues are expected to be R2 600 000 per year and cash expenses are expected to be R1 700 000 per year. Mustek Limited uses the straight-line method of depreciation. The companys cost of capital is 12%.