Kiwanda Limited is considering the purchase of a new machine.Two alternative machines, Pesi TZO and Upesi MO2,
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Question:
Kiwanda Limited is considering the purchase of a new machine.Two
alternative machines, Pesi TZO and Upesi MO2, which will cost Sh.6,000,000 and Sh.7,000,000 respectively are available in the market.
The cash flow after taxation of each machine are as follows:
Cashflow
Year Pesi TZO Upesi MO2
Sh. Sh.
1. 600,000 1,800,000
2. 1,800,000 2,400,000
3. 2,000,000 3,000,000
4. 3,000,000 1,800,000
5. 2,400,000 1,600,000
Required
a) Compute the net present value of each machine.(8marks)
b) Assuming that each machine represents a project:
Compute the return Kiwanda Limited expects to earn from each
of the two projects. (10marks)
Comment on the use of the results obtained in (a) and (b)(i)
above in selecting between the two projects.
(4marks)
(Total:22marks)
Posted Date: