MAC3702 Assignment 2 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED

MAC3702
Assignment 2 Semester 1 2025
Unique #:

Due Date: 23 April 2025

Detailed solutions, explanations, workings
and references.

+27 81 278 3372

, QUESTION 1

a. Internal Rate of Return (IRR)
Initial Outflow (Year 0):

Lease deposit (6 months of R375,000/year): R187,500

Drilling + filtration system (30m × R10,000): R800,000

Total = R987,500 (cash outflow)



Annual cashflows

Year Year 1 Year 2 Year 3 Year 4

Water Cost Saving R1,500,000 R1,500,000 R1,500,000 R1,500,000
600,000 KL/year×R2.50

Operating Costs

Electricity 50,000 KL × 12 × R480,000 R480,000 R480,000 R480,000
R0.8
Maintenance R12,000 R12,000 R12,000 R12,000
Labour R50,000 R50,000 R50,000 R50,000
Lease R375,000 R375,000 R375,000 R375,000
EBIT R583,000 R583,000 R583,000 R583,000

Depreciation R800,000 ÷ 3 R266,666.67 R266,666.67 R266,666.67 R0
years)

Taxable Income R316,333.33 R316,333.33 R316,333.33 R583,000

Tax @ 27% R85,410 R85,410 R85,410 R157,410

Net Income (After Tax) R497,590 R497,590 R497,590 R425,590

Add Back Depreciation R266,666.67 R266,666.67 R266,666.67 R0

Residual Value R0 R0 R0 R150,000

Lease Deposit Refund R0 R0 R0 R187,500

Net Cash Flow R764,256.67 R764,256.67 R764,256.67 R763,090




Varsity Cube 2025 +27 81 278 3372