F Ltd requires a new machine to use in the manufacturing of a new product. Two machines are available: A and B. F Ltd depreciates machinery using the straight-line method. F Ltd will obtain a bank loan at an interest of 10% per annum to buy the machine.

Additional information:

Required:

Calculate for each machine:

1. The accounting rate of return (ARR) (ignore the sale proceeds of the machine)
2. The payback period
3. The net present value (NPV)
4. The internal rate of return (IRR)
5. State, with reasons, which machine F Ltd should purchase. (25)

\begin{tabular}{|c|c|c|} \hline & A$ & BS \\ \hline Cost of machine & 140000 & 180000 \\ \hline \multicolumn{3}{|l|}{ Additional receipts } \\ \hline Year & 98000 & 101000 \\ \hline 2 & 112000 & 118000 \\ \hline 3 & 126000 & 126000 \\ \hline 4 & 126000 & 140000 \\ \hline 5 & 100000 & 110000 \\ \hline \multicolumn{3}{|l|}{Additionalcosts(includingDepreciation)} \\ \hline Year & 70000 & 84000 \\ \hline 2 & 84000 & 98000 \\ \hline 3 & 91000 & 105000 \\ \hline 4 & 98000 & 112000 \\ \hline 5 & 95000 & 100000 \\ \hline Useful life of machine & 5 years & 5 years \\ \hline Present value of $1 & 10% & 40% \\ \hline Year & 0.909 & 0.714 \\ \hline 2 & 0.826 & 0.510 \\ \hline 3. & 0.751 & 0.364 \\ \hline 4. & 0.683 & 0.260 \\ \hline 5. & 0.621 & 0.186 \\ \hline \end{tabular}