Turners Ltd is considering the purchase of a new machine that is expected to save labour on
Question:
Turners Ltd is considering the purchase of a new machine that is expected to save labour on an existing project. The estimated data for the two machines available on the market are as follows:
Which will be selected under the following criteria?
(a) NPV, assuming a cost of finance of 10 per cent p.a.
(b) IRR
(c) ARR
(d) PBP.
Ignore taxation throughout and treat the savings as if they will occur at the end of the relevant year.
Transcribed Image Text:
Initial cost (year 0) Residual value of machines (year 5) Net annual cash inflows: Year 1 Year 2 Year 3 Year 4 Year 5 Machine A 000 120 20 40 40 40 20 40 Machine B 000 120 30 20 30 50 70 50
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