QUESTION $1$

$1\mathrm{.}1$ Barney Limited has the choice of purchasing one of two machines viz. Machine A and Machine B$.$ Both

machines have a five$-$year life with no residual value. The annual volume of production for both machines is

estimated at $600000$ units, which can be sold at R$12$ per unit. Depreciation is calculated on the machine using

the straight$-$line method.

The cost of capital may be assumed at $14\%.$

Required:

$1\mathrm{.}1\mathrm{.}1$ Use the net present value method to determine and justify which machine should be selected by the

company.

$1\mathrm{.}1\mathrm{.}2$ Calculate the accounting rate of return for machine $A.$

$1\mathrm{.}1\mathrm{.}3$ Calculate the payback period for machine B $($Years months and days$).$

$1\mathrm{.}2$ Mo Salah, owner of Liverpool Limited, was approached by a local dealer in air conditioning units. The

dealer proposed replacing the old cooling system of the company with a modern, more efficient system. The

cost of the new system was quoted at R$140000,$ but it would save R$30000$ per year in energy costs. The

estimated life of the new system is $10$ years, with no salvage value expected. All capital projects are required

to earn at least the firms cost of capital at $10\%.$