Cell Phone Machine XYZ can be purchased locally for R190 000 and will also have a useful life of 5 years. It will not have any resale value at the end of the 5 years and will be disposed of. Net cash inflows from additional production will amount to R62 000 per annum for each of the five years. This machine will enable Leeds Limited to achieve a 2% increase in productive capacity.Additional information:•Leeds Limited requires a return on capital of 12% for all investments made. The depreciation policy is to depreciate all non- current assets on a straight-line basis. Assume that all cash flows occur at the end of each financial year except for the initial investment which occurs in period 0.•The capital expenditure committee has indicated that R370 000 is available for this capital expenditure. In terms of the company’s capital expenditure policy, only projects with a payback period of less than four years are accepted.REQUIREDYou are the financial manager at Leeds Limited and have been asked by the Board of Directors to advise them on which machine/s to authorise for purchase. Using appropriate capital budgeting techniques which must include the Payback Period, Net Present Value and Accounting Rate of Return results to compile a report to the Board of Directors detailing the option that should be chosen.
Cell Phone Machine XYZ can be purchased locally for R190 000 and will also have a useful life of 5 years. It will not have any resale value at the end of the 5 years and will be disposed of. Net
Additional information:
•
Leeds Limited requires a return on capital of 12% for all investments made. The
•
The capital expenditure committee has indicated that R370 000 is available for this capital expenditure. In terms of the company’s capital expenditure policy, only projects with a payback period of less than four years are accepted.
REQUIRED
You are the
Step by step
Solved in 2 steps
