Question
Question 4 [25] Profiling (Pty) Ltd needs to replace one of its 3D printers. Management has identified an ideal replacement 3D printer. It is a
Question 4 [25] Profiling (Pty) Ltd needs to replace one of its 3D printers. Management has identified an ideal replacement 3D printer. It is a high-tech 3D printer that is controlled and operated remotely.
They have estimated the net cash flows from investing in this printer as follows:
Year Cash flow
Year 1 R170 000
Year 2 R185 000
Year 3 R220 000
Year 4 R250 000
Year 5 R200 000
Additional information:
The initial required investment is R600 000.
The companys cost of capital is 16%.
Required: Show all calculations and round off all final answers to the nearest whole number.
4.1. Use the information provided to calculate the net present value (NPV) of the printer using the current cost of capital as well as 20% as an alternative cost of capital. (14)
4.2. Use the results of the calculations in 4.1 to calculate the internal rate of return (IRR) of the investment. (8)
4.3. Should the company invest in this new printer? Give reasons for your answer. (3)
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