Question 1 32 points. Investment Appraisals and Cash Flows ANSWER THE FOLLOWING CASES SECTION A The directors of Madura limited are contemplating the purchase of new machine to replace a machine which has been in operation in the factory for the last years. Ignoring interest but considering tax at 50% of net earings suggest which of the teamatives should be preferred. The following are the details: Details Old machine Nie machine Purchase price R40 000 R80 000 Useful life 10 years 10 years Running hours per year 12000 Units per hour 24 Wages per running hour R3 RS25 Power per annum R2 000 R4 500 Consumables per month TR500 All other charos per month R888.67 ROSO Material cost per unit R0 50 ROSO Seling price per un TR1 25 R125 Depreciation is charged on a straight line basis Required 1.1 points) Compare accounting profits for both old and new machine. 12 points) Assess the returns on original investment, average Investment method and return on incremental investment 1.3 (4 points) Draft a recommendation on whether the old machine should be replaced or not SECTION B (12 points) ABTS CO Lad is considering the purchase of a new machine Teatematiemachines (A and have been suggested each having an initial cost of R400 000 and requiring R20 000 as additional working capital at the end of the 1st year Earnings after tamation are expected to be as follows. Al cash flows are expected at the end of each period Yeart Year 2 Year 3 Year 4 Years Machine A R40 000 R120 000 R160 000 R240.000 R150 000 Machine B R120 000 R160 000 R200 000 R120 000 R30 000 The company has target retum on capital of 10% and on this basis. you are required to compare the profitability of the machines and state which have you consider financially preferable using the iPayback ) Net Present Value and internal Rate of Retum methods Question 1 32 points. Investment Appraisals and Cash Flows ANSWER THE FOLLOWING CASES SECTION A The directors of Madura limited are contemplating the purchase of new machine to replace a machine which has been in operation in the factory for the last years. Ignoring interest but considering tax at 50% of net earings suggest which of the teamatives should be preferred. The following are the details: Details Old machine Nie machine Purchase price R40 000 R80 000 Useful life 10 years 10 years Running hours per year 12000 Units per hour 24 Wages per running hour R3 RS25 Power per annum R2 000 R4 500 Consumables per month TR500 All other charos per month R888.67 ROSO Material cost per unit R0 50 ROSO Seling price per un TR1 25 R125 Depreciation is charged on a straight line basis Required 1.1 points) Compare accounting profits for both old and new machine. 12 points) Assess the returns on original investment, average Investment method and return on incremental investment 1.3 (4 points) Draft a recommendation on whether the old machine should be replaced or not SECTION B (12 points) ABTS CO Lad is considering the purchase of a new machine Teatematiemachines (A and have been suggested each having an initial cost of R400 000 and requiring R20 000 as additional working capital at the end of the 1st year Earnings after tamation are expected to be as follows. Al cash flows are expected at the end of each period Yeart Year 2 Year 3 Year 4 Years Machine A R40 000 R120 000 R160 000 R240.000 R150 000 Machine B R120 000 R160 000 R200 000 R120 000 R30 000 The company has target retum on capital of 10% and on this basis. you are required to compare the profitability of the machines and state which have you consider financially preferable using the iPayback ) Net Present Value and internal Rate of Retum methods
