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QUESTION 2 Machine A Machine B Initial cost R100 000 R110 000 5 years 5 years Expected economic life Expected disposal/residual value Expected net cash
QUESTION 2 Machine A Machine B Initial cost R100 000 R110 000 5 years 5 years Expected economic life Expected disposal/residual value Expected net cash inflows R10 000 0 R R End of: Year 1 34 000 33 000 Year 2 27 000 33 000 Year 3 32 000 33 000 Year 4 30 000 33 000 Year 5 26 000 33 000 Depreciation per year 18 000 22 000 The company estimates that its cost of capital is 14%. 2.1 Calculate the payback period for Machine A and B (answers must be expressed in years, months and days) (5 marks) 2.2 (4 marks) Calculate the accounting rate of return (on average investment) for Machine A. (answer rounded off to 2 decimal places)
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