QUESTION $5(20$ Marks$)$

Note: Where discount factors are required, use only the present value tables $($Appendix $1$ and $2)$ that

appear after the formula sheet.

REQUIRED

Use the information given below to calculate the Net Present Value $($NPV$)$ of the project. Ignore

taxes. Calculate the net cash flows for each year, the present values and NPV$.(10$ marks$)$

INFORMATION

Markram Limited is considering the manufacture and sale of economy power inverters. The following information is available:

n New machinery needs to be purchased at a cost of R$8000000.$ A scrap value of R$200000$ is expected.

n It was predicted that the project would have a four$-$year life, and the pattern of sales would be as follows:

Year $13500$ units

Year $26500$ units

Year $34100$ units

Year $41500$ units

n The selling price and manufacturing costs per unit are expected to be R$2000$ and R$1100$ respectively.

n Annual non$-$manufacturing costs of R$100000$ per annum are expected to be paid for each of the four years.

n The company$$s cost of capital is assumed to be $15\%.$

$5\mathrm{.}2$

REQUIRED

Use the information provided below to calculate the following. Ignore taxes.

$5\mathrm{.}2\mathrm{.}1$ Payback Period $($in years, months and days$)(3$ marks$)$

$5\mathrm{.}2\mathrm{.}2$ Accounting Rate of Return on average investment $($expressed to two decimal places$)(4$ marks$)$

$5\mathrm{.}2\mathrm{.}3$ Benefit Cost Ratio $($expressed to two decimal places$).(3$ marks$)$

INFORMATION

A project with an initial cost of R$600000$ is expected to generate net cash flows of R$250000$ per year for five years. Depreciation is calculated using the straight$-$line method. No scrap value is expected. The required rate of return is $12\%.$