Question 3 Use the information provided below to answer the following questions: 3.1 Calculate the Payback Period of both machines. (Answers must be expressed in years, months and days.) 3.2 Name one disadvantage of using the payback method to evaluate capital investments. 3.3 Calculate the Accounting Rate of Return (on average investment) of Machine A (answer rounded off to 2 decimal places). 3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.) 3.5 Calculate the Intemal Rate of Return of Machine B using 17% and 18% (answer rounded off to 2 decimal places). INFORMATION Malibu Limited intends purchasing a new machine and has the option of purchasing one of the following two machines: Machine A Machine B Cost R350 000 R350 000 Scrap value Estimated useful life 4 years 4 years Cost of capital 12% 12% Net cash flows per year: R R End of: Year 1 100 000 130 000 Year 2 115 000 130 000 Year 3 145 000 130 000 Year 4 160 000 130 000 Average Annual profit: R42 500 R42 500

Question 3 Use the information provided below to answer the following questions: 3.1 Calculate the Payback Period of both machines. (Answers must be expressed in years, months and days.) 3.2 Name one disadvantage of using the payback method to evaluate capital investments. 3.3 Calculate the Accounting Rate of Return (on average investment) of Machine A (answer rounded off to 2 decimal places). 3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.) 3.5 Calculate the Intemal Rate of Return of Machine B using 17% and 18% (answer rounded off to 2 decimal places). INFORMATION Malibu Limited intends purchasing a new machine and has the option of purchasing one of the following two machines: Machine A Machine B Cost R350 000 R350 000 Scrap value Estimated useful life 4 years 4 years Cost of capital 12% 12% Net cash flows per year: R R End of: Year 1 100 000 130 000 Year 2 115 000 130 000 Year 3 145 000 130 000 Year 4 160 000 130 000 Average Annual profit: R42 500 R42 500

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.20E

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