solution
solution.
Bjorn Limited has identified a new machine that it is considering for purchase. The machine would cost R500 000,
excluding installation costs of R100 000. The machine is expected to have a useful life of five years. It is expected
that the new machine would generate cash receipts of R300 000 per year and its annual cash outflows would total
R110 000. At the end of year 3, the machine would require a major overhaul costing R100 000 (not included in the
figures above). A scrap value of R50 000 (not included in the figures above) is anticipated. Depreciation is
calculated using the straight-line method. The cost of capital is 15%.
excluding installation costs of R100 000. The machine is expected to have a useful life of five years. It is expected
that the new machine would generate cash receipts of R300 000 per year and its annual cash outflows would total
R110 000. At the end of year 3, the machine would require a major overhaul costing R100 000 (not included in the
figures above). A scrap value of R50 000 (not included in the figures above) is anticipated. Depreciation is
calculated using the straight-line method. The cost of capital is 15%.
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