Page 1 of 1 EEC260S Tutorial 10 06/10/2021 EEC260S (Engineering Economics) Tutorial 10 Due: 10 October 2021 (at 23h59 on Blackboard) QUESTION 1 [15] You have been asked to evaluate a new machine that is being considered by TGT Ltd. The machine will require a R20m investment now, and there will be a R5m salvage value at the end of five years. The net cash inflows are estimated to be R4m per year for five years. Ignore taxation firm. Required: a) Calculate the net present value for the machine assuming a 10% cost of capital for the (5) b) Estimate the internal rate of return for the machine. (2) c) Calculate the payback period (2) d) Based on your calculations, would you recommend that TGT Ltd purchase the machine? Explain your answer (6) [25] QUESTION 2 TGT Ltd wishes to install automated inventory monitoring and handling equipment at a cost of R3.0 million. This will result in an improvement in the supply chain process. This is expected to result in before-tax annual savings of R800 000 for six years. The expected residual value in six years' time is expected to be zero due to expected advances in technology. The company can depreciate the equipment on a straight line basis over six years. The company's cost of capital is 10% and the corporate tax rate is 25% Required: a) What is the NPV of the new equipment? What is the equipment's IRR and Payback period? b) Should the company invest in the equipment? Explain your answer. c) Would your answer to b) change if the cost of capital was 12%? Explain