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QUESTION 4 25 INFORMATION: replaced REQUIRED: Read the information...

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QUESTION 4 25 INFORMATION: replaced REQUIRED: Read the information provided below on a capital acquisition planned by Lubners Limited and his them whether to undertake the capital expenditure or not. Lubners Limited operates transport division which offers long haul transport. It has a fleet of truds which we as the maintenance costs become excessive. One of the trucks needs replacing and Lubners Emines considering the following purchase: A Volvo F1350 which costs R1 500 000 for the horse and a further R500 000 for a custom made trailer. This truck will have a useful life of five years after which it will be sold for 10% of its total purchase cost. transported and the expected net cash revenue in the first year is expected to be R460 000 and this is expected The first alternative is to use this purchase in normal operations in which customers are charged per kilometre to increase by 10% every year. A . This contre's for a period of five years with annual cash revenues of R580 000 for each of the five years. It is company policy to depreciate vehicles over its useful life on a straight line basis and the cost of capitalused to evaluate capital projects is 12%. Internal rate of return is not used in evaluating capital projects

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