FIN3701 Assignment
1 (COMPLETE
ANSWERS) Semester 2
2024 (232195) - DUE 20
August 2024 ; 100%
TRUSTED Complete,
trusted solutions and
explanations.
ADMIN
[COMPANY NAME]
,QUESTION 1 [20 marks] Batlokwa Industries wishes to select
one of three possible machines, each of which is expected to
satisfy the firm’s ongoing need for additional aluminium extrusion
capacity. The three machines, A, B and C, are equally risky. The
firm plans to use a 12% cost of capital to evaluate each of them.
The initial investment and annual cash inflows over the life of
each machine are shown in the following table: Year Machine A
Machine B Machine C 0 (R92 000) (R65 000) (R100 500) 1 R12
000 R10 000 R30 000 2 R12 000 R20 000 R30 000 3 R12 000
R30 000 R30 000 4 R12 000 R40 000 R13 000 5 R12 000 - R30
000 6 R12 000 - REQUIRED: 1.1 Calculate the NPV for each of
the three projects. (9 marks) 1.2 Calculate the annualised net
present value (ANPV) of each machine. (9 marks) 1.3 Based on
the NPV and IRR calculated above, would you advise Batlokwa
(Pty) Ltd to invest their funds in the replacement? Give a reason
for your answer. (2 marks) THERE ARE TWO COMPULSORY
ASSIGNMENTS FOR THE SECOND SEMESTER. The purpose
of this assignment is to evaluate your knowledge of the
fundamental aspects of decision-making for long-term investment.
Study chapters 9, 10, 11 and 12 in the prescribed book as well as
the relevant learning units to complete this assessment. 11
Question 1 [20 Marks]
Batlokwa Industries is considering three different machines (A, B,
and C) for its aluminium extrusion capacity. The machines have
varying initial costs and cash inflows over their respective
lifespans. We need to evaluate these machines using the Net
, Present Value (NPV) and Annualised Net Present Value (ANPV)
methods. The cost of capital is 12%.
Initial Investment and Annual Cash Inflows:
Year Machine A Machine B Machine C
0 (R92,000) (R65,000) (R100,500)
1 R12,000 R10,000 R30,000
2 R12,000 R20,000 R30,000
3 R12,000 R30,000 R30,000
4 R12,000 R40,000 R13,000
5 R12,000 - R30,000
6 R12,000 - -
1.1 Calculate the NPV for each of the three projects (9 marks)
Formula for NPV:
NPV=∑(Rt(1+r)t)−Initial Investment\text{NPV} = \sum \left(
\frac{R_t}{(1 + r)^t} \right) - \text{Initial
Investment}NPV=∑((1+r)tRt)−Initial Investment Where RtR_tRt
is the cash inflow at time ttt, and rrr is the discount rate (12%).
Machine A:
Year Cash Flow Present Value Factor (12%) Present Value
0 (R92,000) 1 (R92,000)
1 R12,000 0.8929 R10,714.80
2 R12,000 0.7972 R9,566.40
3 R12,000 0.7118 R8,541.60
4 R12,000 0.6355 R7,626
5 R12,000 0.5674 R6,808.80
