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QUESTION ONE Aiden Motors has just made an investment of R390 000 in a state of the art chassis straightening device, this is for taxis
QUESTION ONE Aiden Motors has just made an investment of R390 000 in a state of the art chassis straightening device, this is for taxis that have been damaged in motor accidents. Details of the mach below ine are Expected useful life Salvage value Cost of capital The tax rate is 30% Expected cash flows are as follows 5 years (straight line depreciation) 10 000 (sold as scrap metal) 10% * Year 80 000 120 000 100 000 110 000 90 000 2 NB: Discount factors are as follows: Year Discount Factor 10.9091 0.8264 0.7513 0.6830 0.6209 3 Required 1.1 Calculate the Payback Period. 1.2 Determine the Average Rate of Return (ARR). 1.3 Aiden Motors requires a payback period of no more than 4 years and a return of at least 25%. On the basis of these criteria, should this project be accepted? Explain your answer Calculate the NPV for the project. Should the project be accepted on this basis? Explain your answer. To make your ultimate decision, which method will you choose? Why? 1.4 1.5
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