Indium Ltd is considering purchasing a new machine. Two alternatives are considered,

Machine A and Machine B.

Each machine will have a working life of five years. The initial cost of machine A is $400,000,

The scrap value is $20,000 and the initial cost of machine B is $450,000, the scrap value is

50,000 dollars.

The following information is available:

machine a
YEAR	SALE $	COST $	SOME $
1	900000	700000	200000
2	900000	700000	200000
3	800000	650000	150000
4	800000	650000	150000
5	700000	580000	120000

Machine B
YEAR	SALE $	COST $	SOME $
1	950000	770000	180000
2	870000	700000	170000
3	800000	690000	110000
4	750000	620000	130000
5	650000	500000	150000

Total costs including depreciation

The company's cost of capital is 10%

Necessary:

a) Machine A or Machine B, Accounting rate of return (ARR), calculate payback

method and Net present value (NPV). 

b) State FOUR reasons for choosing the Net Present Value method over the Cashback method

method?

c) Another evaluation method is Internal Rate of Return. Briefly describe how Internal

Rate of Return is calculated and its importance.

Answer rating: 100% (QA)

a To compare Machine A and Machine B we need to calculate their accounting rate of return ARR payback period and net present value NPV using the given ... View the full answer