Tucituc (Proprietary) Limited is a car manufacturing company that specialises in contemporary battery operated cars. They realised that their current equipment does not comply with new safety and security regulations. They have to purchase new equipment for their production process. They have gathered information on two possible options, equipment Easy and equipment Peasy. The following information regarding the equipment was gathered: Equipment Easy Peasy R R Cost price 160 000 195 000 15 000 15 000 21 662 28 560 21 662 29 200 Working capital required Net operating income before tax* (year 1) Net operating income before tax* (year 2) Net operating income before tax* (year 3) Net operating income before tax* (year 4) Realisable value at end of useful life-current 23 100 29 200 24 220 30 100 7 500 1 800 Useful life 4 years 4 years Additional information: 1. 2. 3. 4. 5. Taxation: Normal income tax rate - 28%. Wear and tear allowances are calculated on the straight-line method at 20% per annum, on the cost of the asset. Depreciation is calculated on a straight-line basis over the useful life of the equipment. *Depreciation is included in the net operating income before tax. Management requires a 13% after-taxation return on all capital investments. Assume that all cash flows occur at the end of each year, except the initial capital outlays, which occur at the beginning of year 1. The net present value (NPV) of Easy's cash flows has already been correctly calculated as R7 679 at 12% and -R4 085 at 15% and the IRR as 13,96% p.a. 6. REQUIRED: a) Calculate the IRR of equipment Easy, using the information provided to calculate the net present value at 12% and 15% respectively. Then interpolate between 12% and 15%. [Work to three decimal places and round off all other calculations to the nearest rand.) (19) b) Advise management which of equipment Easy or Peasy should be purchased and motivate your recommendation. (1)