ANSWER FOR QUESTION 4.

Workings for net present value calculations Marks

Tax Values Machine

R' 000
Cost 7,500
Wear and Tear - Yr 1 -1,500
Value at end of year 6,000
Wear and Tear - Yr 2 -1,500
Value at end of year 4,500
Wear and Tear - Yr 3 -1,500
Value at end of year 3,000
Wear and Tear - Yr 4 -1,500
Value at end of year 1,500
Residual Value 1,000
Recoupment / (Scrapping Allowance) -500

Tax Calculation
R' 000 0 1 2 3 4

Net Cash Inflows 3,000 3,000 3,000 3,000 0.5

Wear and Tear -1,500 -1,500 -1,500 -1,500 1
Scrapping Allowance -500 1
- 1,500 1,500 1,500 1,000
Tax at 28% - -420 -420 -420 -280 0.5

Cash Flows
R' 000 0 1 2 3 4

Initial Cost -7,500 0.5

Feasibility Study - 0.5
Working Capital -500 - - - 450 1
Net Cash Inflows (Above) 3,000 3,000 3,000 3,000
Residual Value 1,000 1
Tax (from above) - -420 -420 -420 -280
-8,000 2,580 2,580 2,580 4,170

Discount Rate 12% 1

NPV @ 12% R 846.84 R 846.84 R 846,835 1
(Using a Calculator) (Using Excel)

TOTAL 8
MAX 7