Question

QUESTION 1

Smash Ltd, a company specialising in the production of cricket bats, is analysing the potential cash flows from the opportunity to purchase additional machinery
to meet increased demand, due to increased interest in the sport as a result of the upcoming T20 World Cup. The bats will be sold at major sporting retailers throughout the country.

The following potential cash flows have been provided:

YEAR	CASH FLOWS
1	R 11 500 000
2	R 14 300 000
3	R 10 250 000
4	R 4 750 000
5	R (3 125 000)

Smash Ltd’s opportunity cost is 16% per annum.

REQUIRED:

(a) Calculate the present value of the cash flows of Smash Ltd using the financial tables assuming that the cash flows will occur at the end of each year.

(b) Calculate the future value of the cash flows of Smash Ltd using the financial tables assuming that the cash flows will occur at the beginning of each year.

Answer 1