A manufacturing company is considering purchasing a general-purpose machine that can perform many different operations. An investigation narrowed the choice to two machines, Machine 1 and Machine 2. whose cashflows are given below

Year	1	2	3	4	5
Cash Flow for Machine 1 (GHS)	25000	40000	30000	20000	18000
Cash Flow for Machine 2 (GHS)	30000	40000	50000	50000	40000

Machine 1 costs GHé80,000 and has a salvage value of GHe8,000 and Machine 2 costs GH$120,000 and
has a salvage value of GHe12,000. Both machines have an economic life of 5 years, and the salvage values
are payable at the end of their economic life.
Given the information above,
(i) the payback period (at 0% rate) for Machine 1 is...........years and ....... months.
(ii) the payback period (at 0% rate) for Machine 2 is ........ years and ....... months.

(iii) given the payback period for the two machines, you will advise the management of the company to select Machine ............

(iv) suppose the discount rate is 10% per year. Using the discounted payback method, you will advise the management of the company to select Machine ............. at ............ years and .......... months. Round your answer to the nearest whole month.

(v) The Net Present Value (NPV) for Machine 1 at a discount rate of 20 percent is GHs .......

(vi) The Net Present Value (NPV) for Machine 2 at a discount rate of 20 percent is GHs .......

(vii) Assume the NPV for Machine 1 is at an interest rate of 30% per year is -GHS9440.

Using this assumed NPV together with the NPV for Machine 1 in question

(v) above leads to an IRR of ..........

Answer rating: 100% (QA)

The term capital budgeting means determining the value of any project or proposal by applying capital budgeting techniques Explanation The capital bud... View the full answer