Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. question 1 [25 marks] operation kalahari desert lt

QUESTION 1 [25 MARKS] Operation Kalahari Desert Ltd is considering investing in a new machine...

90.2K

Verified Solution

Question

Accounting

image
QUESTION 1 [25 MARKS] Operation Kalahari Desert Ltd is considering investing in a new machine in order to reduce operations costs over the next five years. Machine X and Y are currently being considered the details of which are as follows: Y Capital cost N$300,000 N$350,000 Residual value N$50,000 N$70,000 Annual cost savings N$30,000 N$56,000 The above cost savings have been calculated after the deduction of depreciation on a straight- line basis over the life of the investment. Because of liquidity considerations, the managing director states that the project should have a payback period of less than four years. The company's cost of capital is 10%, the discounts factors for which are: Year 1 Year 2 Year 3 Year 4 Year 5 0.909 0.826 0.751 0.683 0.621 Required: a. Evaluate each of the machines X and Y using the following methods: i. Accounting rate of return using the average capital invested(using profits not cash flows) Payback period(using cash flows not profits) Net Present Value (16) ii. . b. Advise management, giving reasons, as to which machine to purchase. (4) c. Calculate for each machine, a discounted payback period (using discounted cash receipts), and state whether this would have any effect on your answer to (b) above

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students