Question

QUESTION ONE Astra Ltd intend investing in a new machine. The following details relating to the machine apply: Cost of machine Expected useful life Scrap value Method of depreciation Cost of capital 1.1 Year 1 2 3 4 5 Required: 1.1.1 Calculate the pay-back period Profit 'R' 6 000 18 000 100 000 66 000 112 000 R360 000 5 years R 60 000 Straight-line 12% (8) (5)​

Answer 1

Step-by-step explanation:

The pay-back period is calculated by dividing the initial investment by the annual cash inflow:

Initial Investment: R360,000

Annual Cash Inflow: R60,000

Pay-back period = Initial Investment / Annual Cash Inflow

Pay-back period = R360,000 / R60,000

Pay-back period = 6 years

Therefore, the pay-back period for the new machine is 6 years.