Question
Use the information provided below to calculate the following. 5.1 Payback period of both machines (expressed in years, months and days.) 5.2 Accounting Rate of
Use the information provided below to calculate the following.
5.1 Payback period of both machines (expressed in years, months and days.)
5.2 Accounting Rate of Return (on average investment) of Machine A (expressed to two decimal places).
5.3 Net Present Value of both machines.
5.4 Internal Rate of Return of Machine B (expressed to two decimal places) using interpolation if the net cash flows are R290 000 per year for four years.
NFORMATION
Trump Limited intends purchasing a new machine and has the option of purchasing Machine A or Machine B. The following details apply:
| MACHINE A | MACHINE B | |
| Purchase price | R800 000 | R800 000 |
| Expected useful life | 4 years | 4 years |
| Scrap value | 0 | 0 |
| Depreciation per year | R200 000 | R200 000 |
| Minimum required rate of return | 12% | 12% |
| Expected net profit: | ||
| End of: Year 1 | 20000 | 80000 |
| End of: Year 2 | 60000 | 80000 |
| End of: Year 3 | 140000 | 80000 |
| End of: Year 4 | 120000 | 80000 |
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