QUESTION 1 CAPITAL BUDGETING (20) Zensue Limited intends purchasing a new machine and has a choice between the following two machines: Machine 2 Machines Initial cost Expected economic life Expected disposal/residual value Expected net cash inflows End of: Year 1 Year 2 Year 3 Year 4 Year 5 Depreciation per year R100 000 5 years R10 000 R 34 000 27 000 32 000 30 000 26 000 18 000 R110 000 5 years 0 R 33 000 33 000 33 000 33 000 33 000 22 000 The company estimates that its cost of capital is 14%. REQUIRED: (3) ) 1.1 Calculate the payback period for Machine S. (Answers must be expressed in years, months and days) 1.2 Calculate the accounting rate of return (on average investment) for Machine Z. (Answer rounded off to 2 decimal places) 1.3 Explain two advantages of using the accounting rate of return in capital investment appraisal. 1.4 Calculate the net present value of each machine. (round off amounts to the nearest Rand) 1.5 Calculate the internal rate of return for Machine S. (4) (2) (6)