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Management accounting (10 marks) . Amla for the...

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Accounting

Management accounting

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(10 marks) . Amla for the last week of November 2015 QUESTION 4 (20 Marks) Drummond (Ltd) need to invest in machi company may only be able to invest in one of them. You are given the to inery fo r projects M and N. However due to constraint financial resources the Project M Project N Initial cost 760 000 720 000 Net profit/(Loss): Year 1 114 000 114 000 114 000 114 000 114 000 (20 000) 82 000 Year 2 Year 3 Year 4 151 000 190 000 67 000 Year 5 Additional information: 1. Project M machinery will be disposed of at the end of year 5 with a scrap value of R80 000. 2. P roject N machinery will be disposed of at the end of year 5 with a nil scrap value. 3. Depreciation is calculated on a straight line basis. 4. The discount rate to be used by the company is 12%. Required 4.1 Calculate the accounting rate of return for project M and N. 4.2 Determine the payback period for each project. (5 marks) (6 marks) (6 marks) (note: net profit+ depreciation+ scrap value cash inflows) Calculate the net present value of each project. Using your answers from question 4.3 above, choose with reasons the most suitable project? 4.3 (3 marks) 4.4

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