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12 marksCapital Budgeting and Investment Appraisal

CAPE Accounting Unit 2 · 2006 · Paper 2 · Question 3(b)(i)

RG Wholesalers is evaluating three pieces of equipment (A, B, C) costing $70 000 each with a 7-year useful life and a cost of capital of 14%.

Compute the Net Present Value of the three pieces of equipment.

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Other parts of this question

  1. 3(a)(i)Prepare a schedule of cash collections on accounts receivable for July, August, and September.[3 marks]
  2. 3(a)(ii)Prepare a schedule to estimate merchandise purchased for July, August, and September.[5 marks]
  3. 3(a)(iii)Prepare a schedule of estimated cash payments for accounts payable (merchandise purchases) and operating expenses for July, August, and September.[4 marks]
  4. 3(a)(iv)Prepare a cash budget for each of the three months (July, August, and September).[9 marks]
  5. 3(a)(v)On the basis of the cash budget, discuss whether it is likely that RG Wholesalers will be able to repay the…[1 mark]
  6. 3(b)(ii)Based on your calculations in part (i), state which is the most attractive opportunity for RG Wholesalers.[1 mark]

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