Baxter Ltd requires a new machine to use in the manufacture of a new product. Two machines are available: Big Gee and Maxi-Shadbolt. Baxter Ltd. depreciates machinery using the straight-line method. Baxter Ltd will obtain a bank loan at interest of 10% per annum to buy the machine.

Additional costs (including depreciation and bank interest):

Required 

(a) Calculate for each machine: 

(i) The accounting rate of return (ARR) 

(ii) The payback period 

(iii) The net present value 

(iv) The internal rate of return (IRR). 

(b) State, with reasons, which machine Baxter Ltd should purchase.

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Further information von vi red und ginBig Gee erity Cost of machine $140 000 Additional receipts Year 140l 2 3 5 di 98 000 112 000 126 000 126 000 100 000 Maxi-Shadbolt A $180 000 Tou la 101 000 118 000 126 000 Sign 140 000 40000 110 000 aray W