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FIN3701 ASSIGNMENT 1 SEMESTER 2 - 2022
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FIN3701 ASSIGNMENT 1 SEMESTER 2 - 2022
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FIN3701 ASSIGNMENT 1SEMESTER 2 - 2022
UNIQUE NUMBER: 607058
DUE DATE: 19 AUGUST 2022
, QUESTION 1
Kaufold Ltd, a large manufacturer of aircraft components, has a capital budget of R2 000
000 and is evaluating the replacement of its existing machine with the more sophisticated
model. The CFO determined the initial investment required and the terminal cash flow
associated with the replacement to be R1 666 000 and R254 000 respectively. Both the
usable life of the proposed and the remaining life of the current machine are 5 years.
REQUIRED:
1.1 Calculate the incremental cash flows relating to the replacement decision. (6 marks)
1.2 Calculate the NPV and IRR relating to the two investments (using incremental cash
flows calculated above). (2 marks)
1.3 Based on the NPV and IRR calculated above, would you advise Kaufold Ltd to invest
their funds in the replacement? Provide a reason for your answer.
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