Question 5 Use the information provided to answer the questions.

5.1 Use the information provided below to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.

5.1.1 Calculate the Payback Period of Project A (expressed in years, months and days). (3 marks)

5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). (6 marks)

5.1.4 Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivate your choice. (1 marks)

5.2 Use the information provided below to calculate the Internal Rate of Return (expressed to two

decimal places) using interpolation. (5 marks)

INFORMATION

A machine with a purchase price of R1 200 000 is estimated to eliminate manual operations by R400 000 per year.

The machine is expected to have a useful life of four years.

APPENDIX 1: PRESENT VALUE OF R1

APPENDIX 2 : PRESENT VALUE OF A REGULAR ANNUITY OF R1 PER PERIOD FOR N PERIODS

INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You are given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Additional information The discount rate used by the company is 12%. Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000 Number of Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 30 40 50 60 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.9610 0.9238 0.8885 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 0.8000 0.9235 0.8535 0.7894 0.9327 0.8706 0.8131 0.7599 0.7107 0.8548 0.8787 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 07130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.8963 0.8043 0.7224 0.6496 0.5847 0.9053 0.8203 0.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.8874 0.7885 0.7014 0.6246 0.5568 0.4970 0.7730 0.6810 0.6006 0.8277 0.8227 0.7921 0.8528 0.7284 0.6232 0.5339 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.8444 0.7142 0.6050 0.5134 0.6864 0.5703 0.7629 0.7798 0.6095 0.4776 0.6651 0.6227 0.5835 0.5470 0.5132 0.6080 0.3715 0.2281 0.5268 0.4751 0.3751 0.7419 0.5521 0.4120 0.3083 0.6717 0.4529 0.3066 0.2083 0.4440 0.7350 0.7084 0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.8360 0.7002 0.5874 0.4936 04155 0.3503 0.2959 0.2502 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3405 0.2992 0.2633 0.2320 0.2046 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 11% 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.4363 0.3714 0.3166 0.2703 0.1407 0.0872 0.0543 12% 13% 14% 15% 16% 17% 18% 0.8116 0.7972 0.7831 0.7695 0.7561 0.7722 0.7513 0.7312 07118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787 0.5120 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897 0.2575 0.2292 0.4289 0.3875 0.3505 0.3173 0.2875 0.2607 0.4746 0.3967 0.3305 0.2765 0.2317 0.1945 0.1635 0.2963 02330 0.1842 0.1460 0.3971 0.3555 0.3186 0.2858 0.2567 0.2307 0.2314 0.1741 0.1314 0.0994 0.5504 0.3048 0.1697 0.0951 0.0535 0.0303 0.0173 0.4817 0.4523 0.4251 0.4665 0.4339 0.4039 0.3762 0.4224 0.3855 0.3522 0.3220 0.0099 0.0754 0.4581 0.3936 0.3387 0.2919 0.2519 02176 0.1883 0.1631 0.1415 0.1229 0.2946 0.1377 0.1784 0.1486 0.1240 0.1037 0.8613 0.7430 0.6419 0.5553 0.4810 04173 0.3624 0.3152 0.2745 0.2394 0.2090 0.1827 0.1599 0.1401 0.1229 0.1079 0.0949 0.0835 0.0736 0.0649 0.5194 0.4972 0.4761 0.4556 0.4323 0.4104 0.0573 0.0437 0.0334 0.0339 0.0213 0.0134 0.0085 0.0054 0.0035 0.7432 0.7305 0.7182 0.7062 0.6944 0.6400 0.3996 0.3759 0.3538 0.0057 0.0033 0.0019 0.3506 0.3269 0.3050 0.2697 0.2472 0.2267 0.2080 0.3332 0.2366 0.2149 0.1964 0.1778 0.4561 0.4371 0.4190 0.4019 0.3277 0.2848 0.2076 0.1869 0.1685 0.1520 0.3898 0.3704 0.3521 0.3349 0.2621 0.2042 0.1821 0.1625 0.1452 0.1299 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938 0.1342 0.1807 0.1597 0.1413 0.1252 0.1110 19% 20% 0.1420 0.0972 0.0668 0.0460 0.0318 0.0221 0.0154 0.0107 0.0075 0.0053 0.0037 0.0026 0.0019 0.5158 0.4987 0.4823 0.4096 0.0022 0.0014 0.0009 0.0011 0.0007 0.0004 0.0002 0.2311 0.1978 0.1696 0.1456 0.1252 0.1078 0.0929 0.0802 0.0693 0.0600 0.0520 0.0451 0.0225 0.3139 0.2959 0.2791 0.2097 02120 0.1799 0.1528 0.1300 0.1108 0.0946 0.0808 0.0691 0.0592 0.0508 0.0437 0.0376 0.0180 0.2660 0.2487 0.2326 0.1678 0.0001 0.1161 0.0981 0.0829 0.0703 0.0596 0.0506 0.0431 0.1911 0.1756 0.1615 0.1074 0.1619 0.1476 0.1346 0.0859 0.1372 0.1240 0.1122 0.0687 0.1069 0.0930 0.0811 0.0708 0.0618 0.0541 0.0281 25% 0.1163 0.1042 0.0935 0.0550 0.0868 0.0728 0.0611 0.0514 0.0433 0.0365 0.1160 0.0923 0.0736 0.0588 0.0471 0.0378 0.0304 0.0245 0.0197 0.0160 0.0129 0.0001 0.0985 0.0876 0.0779 0.0440 0.0308 0.0367 0.0313 0.0144 * 0.0261 0.0256 0.0196 0.0151 0.0116 0.0090 0.0070 0.0054 0.0042 0.0012 | 0.0006 0.0004 0.0003 0.0002 0.0001 0.0105 0.0013 0.0010 0.0007 * 0.0352 t 0.0115 0.0038 0.0001 * Number f Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 | 25 30 40 50 60 1% 2% 0.9901 0.9804 0.9709 0.9615 1.9704 1.9416 1.9135 3% 3.9020 3.8077 7.6517 4% 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 10.3676 9.7868 9.2526 5% 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 2.9410 2.8839 28286 2.7751 2.7232 26730 26243 25771 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 0.9524 0.9434 0.9346 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 11.2551 10.5753 9.9640 9.3851 8.8633 8.7605 8.3064 14.7179 13.5777 12.5611 11.6523 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 15.5623 14.2919 13.1661 12.1657 6% 16.3983 14.9920 13.7535 12.6593 22.0232 19.5235 17.4131 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 25.8077 22.3965 19.6004 39.1961 31.4236 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7% 17.2260 15.6785 14.3238 13.1339 12.0853 25.7298 21.4822 11.6896 44.9550 34.7602 27.6756 22 6235 7.8869 4.1002 3.9927 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 11.2741 10.4773 32.8347 27.3555 23.1148 19.7928 17.1591 8.3838 7.9427 10.8378 10.1059 9.4466 18.2559 18.0456 16.3514 14.8775 13.5903 124622 11.4699 10.5940 18.9293 8% 7.4987 7.1390 15.6221 14.0939 127834 11.6536 0.9259 0.9174 0.9091 0.9009 9.7632 17.2920 15.3725 13.7648 12.4090 8.7455 8.2442 6.7101 15.0463 13.3317 15.7619 13.8007 9% 7.5361 7.9038 10% 6.2469 5.9952 5.7590 5.5370 3.8897 3.7908 11% 10.6748 5.0330 4.8684 4.7122 5.5348 5.3349 5.1461 64177 6.1446 7.1607 12% 4.4859 4.3553 4.2305 4.1114 3.9975 3.8887 13% 14% 15% 16% 17% 18% 19% 20% 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 27982 27432 26901 2.6386 2.5887 8.0607 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906 4.5638 4.4226 4.2883 5.8892 5.6502 6.8052 6.4951 6.2065 5.9377 5.6869 5.4527 5.4262 5.2161 5.3282 5.1317 4.9464 4.7716 6.8137 6.4924 6.1944 5.9176 5.6603 7.4869 7.1034 6.7499 6.4235 6.1218 5.8424 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 7.3658 6.9380 6.5504 12.2335 10.9617 9.9148 2.2832 2.2459 2.2096 21743 2.1399 1.6052 1.5852 1.5656 1.5465 1.5278 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372 9.1216 8.5436 8.0216 7.5488 7.1196 6.7291 6.3729 3.7845 3.6847 3.5892 4.1604 4.0386 3.9224 5.2337 11.2578 10.2737 9.4269 8.6938 8.0552 7.4957 7.0027 3.4976 3.4098 3.3255 3.8115 2.1065 7.7862 7.3667 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.2293 5.0081 4.8023 3.7057 3.6046 4.6065 4.4506 4.3038 4.1633 4.0310 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925 5.0286 4.8364 4.6560 4.4865 5.4206 5.1971 4.9884 4.7932 4.6105 10.8276 10.0591 9.3719 8.7556 8.2014 7.7016 7.2497 6.8399 6.4674 6.1280 5.8178 5.5339 5.2732 5.0333 4.8122 7.6061 7.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.3242 5.0916 4.8759 4.6755 8.8514 8.3126 7.8237 7.3792 6.9740 6.6039 6.2651 5.9542 5.6685 5.4053 5.1624 4.9377 4.7296 5.5831 5.3423 5.1183 4.9095 4.7147 4.5327 9.8226 9.0770 8.4217 7.8431 7.3300 6.8729 6.4641 6.0971 4.3271 4.4392 11.9246 10.7574 9.7791 8.9511 8.2438 7.6344 7.1050 6.6418 6.2335 4.6106 6.0472 5.7487 5.4746 5.2223 4.9897 4.7746 9.8181 9.1285 8.5136 7.9633 7.4694 7.0248 6.6231 6.2593 5.9288 5.6278 5.3527 5.1009 4.8696 6.1982 5.8775 5.5845 5.3162 5.0700 4.8435 5.7662 5.4669 5.1961 4.9476 6.5660 6.1772 5.8294 5.5168 5.2347 4.9789 5.8713 5.5482 5.2582 4.9966 9.0417 8.3045 7.6752 7.1327 6.6605 6.2463 5.8801 5.5541 5.2623 4.9995 16.1614 14.0392 12.3766 11.0480 9.9672 9.0736 8.3240 7.6873 7.1401 6.6651 6.2402 5.8819 5.5553 5.2630 4.9999