3. XYZ Ltd is considering purchasing a new machine, and the relevant facts concerning two possible choices are as follows;
Machine A Machine B
Capital expenditure required $ 65,000 $ 60,00
Estimated life in years 4 4
Residual values Nil Nil
Cash flow after taxation each year $25,000 $ 24,000
The company's cost of capital is 10%
1 2 3 4 5
0.909 0.826 0.751 0.683 0.621
Required:
Calculate, for each machine, the payback period, the net present value and the profitability index. State with reasons which machine you would recommend.
