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%. 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 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%. Calculate the Internal Rate of Return of Equipment B.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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QUESTION 5 Use the information provided below to answer the following questions. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 5.1 5.2 5.3 5.4 5.5 Calculate the Payback Period of both machines (expressed in years, months and days.) Which machine should be chosen on the basis of payback period only? Why? Calculate the Accounting Rate of Return (on average investment) of Machine A (expressed to two decimal places). Calculate the Net Present Value of each machine (amounts expressed to the nearest Rand.) Calculate the Internal Rate of Return of Machine B (expressed to two decimal places) using interpolation.
Using the provided information calculate the NPV Mkhize Ltd is considering buying a machine and has presented the following information; Purchase price Expected economic life Minimum required rate of return Net cash inflows Rate of taxation Depreciation is calculated using the straight-line method A. Positive R12,883 B. Negative R9,086 OC. Positive R10,089 OD. Negative R988 R130 000 10 years 12% R25000 30%
QUESTION 2 INFORMATION: 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 Scrap value Expected net cash inflows: 5 years 5 years Nil Nil 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.
Consider the decision to purchase one of the two machines X or Y, which cost M100 000 and M150 000, respectively, The net cash inflows expected from these two machines are shown in Table 6.1 below Year Machine X Machine Y 10 000 50 000 15 000 50 000 20 000 50 000 4 25 000 50 000 30 000 50 000 40 000 50 000 7 45 000 40 000 Your Task; i) Calculate the PayBack Period (PBP) of machines X and Y ii) Calculate the Return on Investment (ROI) of each machine i) Which machine would you recommend on the basis of the PBP and the ROI and why? 2. 3. 6.
Note: - You are attempting question 8 MNO company is evaluating a proposal for purchase of equipment which will cost S180,000. The cash inflows from the use of equipment is given below: Year Cash flow S60,000 $40,000 S70,000 $125,000 $35,000 1 3 4 Payback period for the proposal is: а. 3 years b. 2 years с. 4 years d. 3.08 years
MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 3)Calculate the net present value of each machine
MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 1) Calculate the payback period for Machine A and B (answers must be expressed in years, monthsand days).
Can you show me how this is done? Grayson Corp. is considering the purchase of a piece of equipment that costs $34,269. Projected net annual cash flows over the project’s life are: Year Net Annual Cash Flow 1 $ 6,702 2 19,077 3 15,682 4 19,233 The cash payback period is. Round your answer by two decimals Selected Answer: 0.56 Correct Answer: 2.54 ± 0.01
ems i Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts. Gross investment Less: Accumulated depreciation Net investment Year 0 Year 1 Year 2 Year 3 Year 4 $ 65,000 $ 65,000 $65.000 $ 65,000 $65,000 0 16,250 32,500 48,750 65,000 AAR $ 65,000 $48.750 $ 32.500 $ 16,250 $ 0 The machine generates, on average. $4.900 per year in additional net income. What is the average accounting return for this machine? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) Saved
CLC Publishing is considering the purchase of an offset printing machine. A study of three available alternatives shows the following estimates: A B C Acquisition Cost P700 000.00 P850 000.00 P1000 000.00 Shipping Cost 5% 5% 8% Net Annual Benefit P155 000.00 P145 000.00 P170 000.00 Useful Life 8 years 16 years 16 years Salvage Value P35 000.00 P70 000.00 P80 000.00 If at the end of eight years, alternative A could be replaced with an identical machine having the same cost and benefits, determine the alternative to be selected using present worth analysis and a 14% MARR. (Ans. PTA= - P5005.80; PTB = P24 536.06; PTC = - P5108.53; select alternative B) Determine the best printing…
1/. The company ABC is considering two mutually exclusive investment programs which have a lifetime of two years. The cash flows of the two programs (in thousands of euros), as well as the corresponding probabilities of their realization are presented in the following tables: Year 0 Year 1 Cost Probability Cash Flow -400 Year 0 40% -700 60% Cost Probability Cash Flow 35% Year 1 65% TOPIC 1st INVESTMENT A 440 380 INVESTMENT B 480 Year 2 Potential Cash Flow 60% 40% 70% 30% 340 Chance Year 2 40% 60% 55% 45% 460 420 410 360 Cash Flow 490 480 380 330 AV. Consider, based on the criterion of Expected Net Present Value, which of the two investments would you choose, given that the weighted average cost of capital in the case of Investment A is estimated at 10%, Investment B at 8%, while the risk-free rate is 3%. B/. Let's say at the end of the first year a prospective buyer comes along and makes an offer to buy the investment you chose to implement in question a/. According to his offer, he…
CLC Publishing is considering the purchase of an offset printing machine. A study of three available alternatives shows the following estimates: A B C Acquisition Cost P700 000.00 P850 000.00 P1 000 000.00 Shipping Cost 5% 5% 8% Net Annual Benefit P155 000.00 P145 000.00 P170 000.00 Useful Life 8 years 16 years 16 years Salvage Value P35 000.00 P70 000.00 P80 000.00 If at the end of eight years alternative A could be replaced with an identical machine having the same cost and benefits, determine the alternative to be selected using present worth analysis and a 14% MARR. (Ans. PTA= -P5005.80; PTB= P24 536.06; PTC= -5108.53; select alternative B)