QUESTION 4 (20 marks)

Tucituc (Proprietary) Limited is a car manufacturing company that specialises in contemporary battery operated cars. They realised that their current equipment does not comply with new safety and security regulations. They have to purchase new equipment for their production process. They have gathered information on two possible options, equipment Easy and equipment Peasy. The following information regarding the equipment was gathered:

Cost price 160 000 195 000 Working capital required 15 000 15 000 Net operating income before tax* (year 1) 21 552 23 560 Net operating income before tax* (year 2) 21 552 29 200 Net operating income before tax* (year 3) 23 100 29 200 Net operating income before tax" (year 4) 24 220 30 100 Realisable value at end of useful life-current 7 500 1 300 Useful life 4 years 4 years