QUESTION $5$

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

that appear after QUESTION $5.$

$5\mathrm{.}1$

REQUIRED

From fe information provided below which project would you recomrend? Subsarfiate

your answer by showing the relevart calculatons that take the fime value of money inth

sccount. Nate: The IRR is not required.

IFORMATION

MK Enterprises has R$200000$ which it will imest if the irvessment earns at least $16\%$ per annum. Three

projects are being considered, each of which will cost R$200000$ to commence.

Project $x$ would eam R$220000$ at the end of the first year.

Project $Y$ would eam R$250000$ at the end of the second year.

Project $Z$ would earn R$120000$ at the end of he first year and R$125000$ at the end of the second year.

$5\mathrm{.}2$

REQUIRED

Study the information given below to delermine whether the company should accept fe

imestrent opporturity or not. Motvate your answer by calculaing the Accourting Rase

of Return on average invesiment $($expressed to two decimal places$).$

IFORMATION

Universal Limied is a manufacuring company and is management is apprasing the production and

sale of a new product. This would involve the purchasse of a new machine with a cost price of

R$1200000$ and an expected scraplsalvage value of $R200000.$

The net cash flows from the machine are estimased to be R$300000$ per year for eight years.

Depreciation is expected to be R$125000$ per year. The company's cost of capital is $16\%.$

REQUIRED

Use the information given below to answer the following quesfion:

$53\mathrm{.}1$ Calailase the Infernal Rate of Retum $($eupressed to two decimal places$).$ Your

answer must include two net present value calulations $($using conseautive cost

of capital rates$)$ and interpolation.

$5\mathrm{.}3\mathrm{.}2$ Based on the RR should the compeny consider purchasing the machine? Why?

ENFORMATION

Verus Limied is imestigabing an oppordurity to purchase a machine for R$640000.$ The msdire is

expecied generate net cash fows of R$180000$ per annum for five years. The company's cost of capital

is $16\%$