Question 2 [15 Marks]

Boyson (Pty) Ltd manufactures and sells high-tech products to the retail stores. Due to the increase in their production output requirements, they are planning to buy a new production equipment, which costs R250 000, but the company has the following unequal net cash inflows during its life: Year 1 = R105 000, year 2 = R75 000, year 3 and 4 = R55 000 and year 5 = R45 000 each. The equipment would have R40 000 residual value at the end of its life. Calculate the companys accounting rate of return and briefly explain whether the company should consider buying the new equipment, based on the ARR results. Show all calculations clearly.