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Use the information provided below to answer the following questions: 5 . 1 Calculate the Payback Period of the first alternative ( expressed in years,
Use the information provided below to answer the following questions: Calculate the Payback Period of the first alternative expressed in years, months and days marks Calculate the Accounting Rate of Return on initial investment of the first alternative expressed to two decimal places marks Based on the Net Present Value, which alternative should be chosen? Why? Show the calculations of the present values as well as the net present values. marks Calculate the Internal Rate of Return expressed to two decimal places of the first alternative. Your answer must include two net present value calculations using consecutive ratespercentages and interpolation. marks INFORMATION The management of Torga Limited is considering two investment opportunities: The first alternative involves the purchase of new machinery for R which will enable the company to modernise its production facility. The machinery is expected to have a useful life of five years and no salvage value is anticipated. On the day Torga Limited purchases the new machinery, it would also pay the supplier R for installation costs. The modernisation is expected to increase efficiency, resulting in a reduction in annual cash operating expenses of R The second alternative involves purchasing a truck. The truck costs R Its useful life is expected to be five years and a salvage value of R is anticipated. Operating the truck will necessitate an increase of R in the companys working capital base immediately upon buying the truck. The working capital cash outflow is expected to be recovered at the end of the trucks useful life. The truck is expected to generate R per year in additional cash revenues. The drivers salary and other cash operating expenses are expected to be R per year. Torga Limited desires a rate of return of The straightline method of depreciation is used. Ignore taxes.
Use the information provided below to answer the following questions:
Calculate the Payback Period of the first alternative expressed in years, months and days marks
Calculate the Accounting Rate of Return on initial investment of the first alternative
expressed to two decimal places marks
Based on the Net Present Value, which alternative should be chosen? Why? Show the calculations of the
present values as well as the net present values. marks
Calculate the Internal Rate of Return expressed to two decimal places of the first alternative. Your answer
must include two net present value calculations using consecutive ratespercentages and interpolation.
marks
INFORMATION
The management of Torga Limited is considering two investment opportunities:
The first alternative involves the purchase of new machinery for R which will enable the company to
modernise its production facility. The machinery is expected to have a useful life of five years and no salvage
value is anticipated. On the day Torga Limited purchases the new machinery, it would also pay the supplier R
for installation costs. The modernisation is expected to increase efficiency, resulting in a reduction in annual
cash operating expenses of R
The second alternative involves purchasing a truck. The truck costs R Its useful life is expected to
be five years and a salvage value of R is anticipated. Operating the truck will necessitate an increase
of R in the companys working capital base immediately upon buying the truck. The working capital
cash outflow is expected to be recovered at the end of the trucks useful life. The truck is expected to generate
R per year in additional cash revenues. The drivers salary and other cash operating expenses are
expected to be R per year.
Torga Limited desires a rate of return of The straightline method of depreciation is used. Ignore taxes.
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