FINANCIAL MANAGEMENT
FIN3701
ASSIGNMENT 01 SEMESTER 01 2024
QUESTION 1
1.1 Calculate the incremental cash flows relating to the replacement decision.
Incremental Cash Flow = Cash Flow from Proposed Machine - Cash Flow from Current
Machine
Year Proposed machine Current machine Incremental cashflows
1 986 000 895 000 91 000
2 986 000 881 000 105 000
3 986 000 819 000 167 000
4 986 000 805 000 181 000
5 986 000 791 000 195 000
, 1.2 Calculate the NPV and IRR relating to the two investments (using incremental
cash flows calculated above).
NPV calculation
CF0 = (R1 666 000)
CF1 = R91 000
CF2 = R105 000
CF3 = R167 000
CF4 = R181 000
CF5 = *R449 000
I/YR = 15%
NPV = -R1 070 949.58
*R195 000 + R254 000 =R449 000
Internal rate of return
IRR = 12.39%
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.
The company should not invest their funds to replace the machine because its NPV is
negative, and the IRR is less than the cost of capital.
QUESTION 2
2.1 Calculate the NPV and IRR relating to the investment in toxic waste containers.
Cash Certainty Certain PVIF Present value of
Year inflows Equivalents Cashflows @9% cashflows
1 20 000 0,9 18000 0,9174 16 513,76
2 16 000 0,8 12800 0,8417 10 773,50
3 12 000 0,6 7200 0,7722 5 559,72
4 10 000 0,5 5000 0,7084 3 542,13
5 10 000 0,4 4000 0,6499 2 599,73
Total 38 988,84
FIN3701
ASSIGNMENT 01 SEMESTER 01 2024
QUESTION 1
1.1 Calculate the incremental cash flows relating to the replacement decision.
Incremental Cash Flow = Cash Flow from Proposed Machine - Cash Flow from Current
Machine
Year Proposed machine Current machine Incremental cashflows
1 986 000 895 000 91 000
2 986 000 881 000 105 000
3 986 000 819 000 167 000
4 986 000 805 000 181 000
5 986 000 791 000 195 000
, 1.2 Calculate the NPV and IRR relating to the two investments (using incremental
cash flows calculated above).
NPV calculation
CF0 = (R1 666 000)
CF1 = R91 000
CF2 = R105 000
CF3 = R167 000
CF4 = R181 000
CF5 = *R449 000
I/YR = 15%
NPV = -R1 070 949.58
*R195 000 + R254 000 =R449 000
Internal rate of return
IRR = 12.39%
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.
The company should not invest their funds to replace the machine because its NPV is
negative, and the IRR is less than the cost of capital.
QUESTION 2
2.1 Calculate the NPV and IRR relating to the investment in toxic waste containers.
Cash Certainty Certain PVIF Present value of
Year inflows Equivalents Cashflows @9% cashflows
1 20 000 0,9 18000 0,9174 16 513,76
2 16 000 0,8 12800 0,8417 10 773,50
3 12 000 0,6 7200 0,7722 5 559,72
4 10 000 0,5 5000 0,7084 3 542,13
5 10 000 0,4 4000 0,6499 2 599,73
Total 38 988,84
