QUESTION $5$

$(20$ Marks$)$

Note: Where discount factors are required use only the $4$ decimals present value tables that appear in the module guide.

$5\mathrm{.}1$

REQUIRED

Use the information provided below to calculate the following:

$5\mathrm{.}1\mathrm{.}1$ Payback Period $($expressed in years, months and days$)$

$(3$ marks$)$

$5\mathrm{.}1\mathrm{.}2$ Accounting Rate of Return on initial investment $($expressed to two decimal places$)$

$(4$ marks$)$

$5\mathrm{.}1\mathrm{.}3$ Internal Rate of Return $($expressed to two decimal places$).$ Your answer must include two NPV calculations $($using consecutive rates$/$percentages$)$ and interpolation.

$(6$ marks$)$

INFORMATION

Gillette Manufacturers intends investing in a machine. The following details relate to this machine:

$\begin{array}{cc}\text{P}\text{u}\text{r}\text{c}\text{h}\text{a}\text{s}\text{e}\text{p}\text{r}\text{i}\text{c}\text{e}& R800000\\ \text{E}\text{x}\text{p}\text{e}\text{c}\text{t}\text{e}\text{d}\text{u}\text{s}\text{e}\text{f}\text{u}\text{l}\text{l}\text{i}\text{f}\text{e}& 4\text{y}\text{e}\text{a}\text{r}\text{s}\\ \text{S}\text{c}\text{r}\text{a}\text{p}\text{v}\text{a}\text{l}\text{u}\text{e}& R40000\\ \text{M}\text{i}\text{n}\text{i}\text{m}\text{u}\text{m}\text{r}\text{e}\text{q}\text{u}\text{i}\text{r}\text{e}\text{d}\text{r}\text{a}\text{t}\text{e}of\text{r}\text{e}\text{t}\text{u}\text{r}\text{n}& 15\%\\ \text{E}\text{x}\text{p}\text{e}\text{c}\text{t}\text{e}\text{d}\text{n}\text{e}\text{t}\text{p}\text{r}\text{o}\text{f}\text{i}\text{t}\text{:}& ?\\ 1^{st}\text{y}\text{e}\text{a}\text{r}& R60000\\ 2^{nd}\text{y}\text{e}\text{a}\text{r}& R80000\\ 3^{rd}\text{y}\text{e}\text{a}\text{r}& R110000\\ 4^n\text{y}\text{e}\text{a}\text{r}& R120000\end{array}$

Depreciation is calculated using the straight$-$line method. Ignore taxes.

$5\mathrm{.}2$

REQUIRED

Study the information provided below and answer the following questions:

$5\mathrm{.}2\mathrm{.}1$ Compute the Net Present Value of the project. $($Show the calculations of the present values as well as the net present value.$)$

$(6$ marks$)$

$5\mathrm{.}2\mathrm{.}2$ Should the new project be considered for acceptance? Why?

$(1$ mark$)$

INFORMATION

Mabel Ltd is looking at the possibility of investing in a project. The project would cost R$1000000$ and it is expected to have a scrap value of R$200000.$ Working capital of R$100000$ would be required at the start of the project and it would be recovered at the end of the useful life of the project. It is estimated that the project would generate cash revenues of R$800000$ per year and the cash operating expenses would total R$420000$ per year. The project is expected to have a useful life of five years. The cost of capital is $15\%.$ Ignore taxes.