Question 5 Financial Accounting

REQUIRED Use the information provided below to answer the following questions: 5.1 Calculate the Payback Period of the first alternative (expressed in years, months and days). (3 marks) 5.2 Calculate the Accounting Rate of Return on initial investment of the first alternative (expressed to two decimal places). (4 marks) 5.3 Based on the Net Present Value, which alternative should be chosen? Why? (Show the calculations of the present values as well as the net present values.) (8 marks) 5.4 Calculate the Internal Rate of Return (expressed to two decimal places) of the first alternative. Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION The management of Torga Limited is considering two investment opportunities: The first alternative involves the purchase of new machinery for R1 200000 which will enable the company to modernise its production facility. The machinery is expected to have a useful life of five years and no salvage value is anticipated. On the day Torga Limited purchases the new machinery, it would also pay the supplier R60 000 for installation costs. The modernisation is expected to increase efficiency, resulting in a reduction in annual cash operating expenses of R380 000