CAVENDISH UNIVERSITY
DEPARTMENT:
MODULE:
BUSINESS AND MANAGEMENT
MANAGERIAL ACCOUNTING – MR. MAHLANGU
LEE MAHLANGU
0978877736
Mahl48@yahoo.com
2,500 – 3,000 WORDS IN LENGTH
HARVARD REFERENCING SYSTEM IS RECOMMENDED (MINIMUM REFENCES 5 QUOTATIONS)
FORMAT: INTRODUCTION, ANSWER QUESTIONS, RECOMMENDATIONS AND CONCLUSIONS.
Date Due:
As per calendar
ASSIGNMENT: ONE & TWO
Nchanga Demolishers Limited
Nchanga Demolishers Limited intends purchasing a new demolishing machine. The
following information relating to the machine is available.
Cost of machine
Expected useful life
Scrap value
Method of depreciation
Cost of Capital
Year
1
2
3
4
5
Cash flow
20,000,000
24,000,000
56,000,000
40,000,000
60,000,000
K120, 000,000
6 years
K80, 000,000
Straight line
14%
Profit
2,000,000
6,000,000
38,000,000
22,000,000
42,000,000
Q.1.
a) What are relevant costs in investment appraisal decision making?
b) Contrast between payback period and accounting rate of return (ARR .
c) Using the information in the case study above calculate the following :
i)
Payback period for the new machine in months .
ii)
Net present value (NPV) for the new machine and advise if Nchanga
Demolishers Limited should invest in this machine.
Total 20 marks
Q.2.
a) Outline the main differences between NPV and IRR
b) Using the information in the case study above, calculate the ARR for the new
machine. Is this return favourable to Nchanga Demolishers Limited? Give reasons for
your answer.
c) Using the information in the case study above, calculate the IRR for the new machine.
Discuss your conclusion from your calculations.
Total 20 marks