Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION ONE Gogo Limited has just made an investment of R390 000 in a new machine. Details of the machine are as follows: Expected useful

QUESTION ONE

Gogo Limited has just made an investment of R390 000 in a new machine. Details of the machine are as follows:

Expected useful life 5 years (straight line depreciation)

Salvage value 10 000 (sold as scrap metal)

Cost of capital 10 %

The tax rate is 30%

Expected cash flows are as follows:

Year

180 000

2 120 000

3 100 000

4 110 000

5 90 000

Required: ( Please show all calculations )

1.1 Calculate the Payback Period(5 marks)

1.2 Determine the Accounting / Average Rate of Return (ARR)(5 marks )

1.3 Gogo Limited 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. (4 marks )

1.4 Calculate the Net Present Value for the project. Should the project be accepted on this basis? Explain your answer. (7 marks )

1.5 To make your ultimate decision, which method will you choose? Why? (4 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Financial Management

Authors: Eugene F. Brigham, Joel F. Houston

13th edition

978-1285027371, 128502737X, 978-1133541141

More Books

Students also viewed these Finance questions