Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.

REQUIRED Use the information provided below to answer the following questions:

5.1 Calculate the Payback Period of Machine A (expressed in years, months and days.) (3 marks) 5.2 Calculate the Accounting Rate of Return on average investment of Machine A (expressed to two decimal places). (4 marks)

5.3 Calculate the Net Present Value (NPV) of both machines. (6 marks)

5.4 Based on the Net Present Value, which machine should Aspen Limited purchase? Why? (1 mark)

5.5 Calculate the Internal Rate of Return (IRR) of Machine B (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (6 marks)

INFORMATION Aspen Limited intends purchasing a new machine and has the option of purchasing Machine A or Machine B.

The following details apply. Ignore taxes.

Machine A

Purchase price R500 000 Expected useful life 4 years Scrap value 0 Depreciation per year R125 000 Minimum required rate of return 12% Expected net cash inflows Year 1 ? Year 2 ? Year 3 ? Year 4 ? Expected net profit Year 1 R15 000 Year 2 R35 000 Year 3 R95 000 Year 4

R75 000

Machine B

Purchase price R500 000 Expected useful life 4 years Scrap value 0 Depreciation per year R125 000 Minimum required rate of return 12% Expected net cash inflows Year 1 R180 000 Year 2 R180 000 Year 3 R180 000 Year 4 R180 000 Expected net profit Year 1 ? Year 2 ? Year 3 ? Year 4

?