Question: ABC Inc. is considering two mutually exclusive machines for its production line. The cost of capital is 13% and the tax rate is 25%. Below

  • ABC Inc. is considering two mutually exclusive machines for its production line. The cost of capital is 13% and the tax rate is 25%. Below are the details:

Particulars

Machine 1

Machine 2

Cost of machine

16,00,000

18,50,000

Expected life

5 years

5 years

Annual Income (before Tax & Depreciation)

4,50,000

5,25,000

  • Depreciation is charged on a straight-line basis. You are required to calculate: a. Internal Rate of Return (IRR) b. NPV c. Payback period

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