Vista Limited intends purchasing a new machine and has a choice between the following two machines: Equipment A Equipment B Initial cost R220 000 R240 000 Expected useful life 5 years 5 years Scrap value Nil Nil Expected net cash inflows: R R End of: Year 1 55 000 70 000 Year 2 60 000 70 000 Year 3 62 000 70 000 Year 4 60 000 70 000 Year 5 70 000 70 000 The company estimates that its cost of capital is 12%. Required: 2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days). 2.2 Calculate the Accounting Rate of Return (on initial investment) for both equipment A and B. (Answers must be expressed to 2 decimal places). 2.3 Calculate the Net Present Value of each equipment. (Round off amounts to the nearest Rand.) 2.4 Calculate the Internal Rate of Return of Equipment B
Vista Limited intends purchasing a new machine and has a choice between the following two machines:
Equipment A
Equipment B
Initial cost
R220 000
R240 000
Expected useful life
5 years
5 years
Scrap value
Nil
Nil
Expected net
R
R
End of:
Year 1
55 000
70 000
Year 2
60 000
70 000
Year 3
62 000
70 000
Year 4
60 000
70 000
Year 5
70 000
70 000
The company estimates that its cost of capital is 12%.
Required:
2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days).
2.2 Calculate the Accounting
2.3 Calculate the
2.4 Calculate the
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