Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending

Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shown below: Truck Y Truck Z Net cash flow Net cash flow Year 0 (140 000) (160 000) 1 50 000 85 000 2 60 000 90 000 3 50 000 75 000 4 40 000 65 000

a) Calculate the payback period for each truck. Explain which truck the business should buy and why. (6 marks)

b) Calculate the discounted payback for each truck. (8 marks)

c) Determine the Net Present Value for each truck. (2 marks)

d) Calculate the profitability index for each truck. (4 marks) e) Describe five advantages of the NPV method of capital budgeting. (5 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investment Science

Authors: David G. Luenberger

1st International Edition

0195391063, 9780195391060

More Books

Students also viewed these Finance questions

Question

1. What is the difference between exempt and nonexempt jobs?pg 87

Answered: 1 week ago