Ashi Madox is considering acquiring a new machine to boost its production capacity. The following information refers :-

1. JBoy cost RM400,000

2. Anisha cost RM405,500.

Both machines would have a useful life of four years, with no residual value.

Operating cash flow savings, are forecast as follows:

		JBoy	Anisha
Year		RM	RM
1		120,000	105,000
2		120,000	112,500
3		120,000	120,000
4		90,000	120,000
The company’s cost of capital is 12% per annum.

Calculate for both machines:

a) Payback period

b) Net Present Value

c) Internal rate of Return

d) Profitability Index

e) Advice the company to which machine to buy

Answer rating: 100% (QA)

Answer Step 1 a Payback period i For JBoy The payback period is determined on the basis of cumulative cash flow table below Year Cash flow Cumulative cash flow 1 120000 120000 2 120000 240000 3 120000 ... View the full answer