I

$$ INFORMATION

Liberty Limited intends purchasing a machine to improve operations. It is currently considering the following two options:

Option $1$

The machine can be purchased in Italy for a cost of R$1300000.$ A further R$250000$ will have to be incurred on shipping and installation costs. The machine is expected to result in net cash inflows as follows:

$\backslash$table$[[$Year$,$R$],[1,310000],[2,325000],[3,350000],[4,380000],[5,420000]]$

The machine is expected to have residual value of $R150000($not included in the figures above$)$ after five years.

Option $2$

A machine can be purchased in Africa at a cost of R$1600000.$ This machine will have a useful life of four years and will result in increases in net cash inflows of R$520000$ per annum for each of the four years.

The company has a required rate of return of $8\%.$

Machinery is depreciated on a straight$-$line basis.

REQUIRED

$1\mathrm{.}1$ Calculate the payback period for option $1$ and $2$

$(5$ marks$)$

$($answer to be reflected in years, months and days$)$

$1\mathrm{.}2$ Calculate the net present value of options $1$ and $2$

$(6$ marks$)$

$($discount factors to be used as found in your module guide to four decimal places$)$