Omega Limited intends purchasing a new machine and has a choice between the following two machine: Machine ABC: The cost of this machine is R200 000 with an expected economic life of 5 years and a residual value of R20 000. Depreciation is calculated on the straight-line method. The expected new cash flows are as follows: Year 1 R68 000 Year 2 R54 000 Year 3 R64 000 Year 4 R60 000 Year 5 R52 000 Machine XYZ: The cost of machine XYZ is R220 000. It has an expected economic life of 5 years with no residual value. Depreciation is calculated on the straight-line method. The expected new cash flows are R66 000 per annum every year for the 5-year period. Omega Limited estimates that its cost of capital is 14%. Required: 2.1 Calculate the payback period for machine XYZ (answers must be expressed years, months and days) 2.2 Calculate the accounting rate of return for Machine ABC 2.3 Explain two advantages of using the accounting rate of return in capital investment appraisal.
Omega Limited intends purchasing a new machine and has a choice between the following two machine:
Machine ABC:
The cost of this machine is R200 000 with an expected economic life of 5 years and a residual value of R20 000.
|
Year 1 |
R68 000 |
|
Year 2 |
R54 000 |
|
Year 3 |
R64 000 |
|
Year 4 |
R60 000 |
|
Year 5 |
R52 000 |
Machine XYZ:
The cost of machine XYZ is R220 000. It has an expected economic life of 5 years with no residual value. Depreciation is calculated on the straight-line method. The expected new cash flows are R66 000 per annum every year for the 5-year period.
Omega Limited estimates that its cost of capital is 14%. Required:
2.1 Calculate the payback period for machine XYZ (answers must be expressed years, months and days)
2.2 Calculate the accounting
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2.3 Explain two advantages of using the accounting rate of |
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2.4 Calculate the |
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