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:

Year

R

$1$

$310000$

$2$

$325000$

$3$

$350000$

$4$

$380000$

$5$

$420000$

The machine is expected to have residual value of R$150000($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$)$

$1\mathrm{.}3$

Calculate the Internal rate of return for option $2(5$ marks$)$

$($Answer to be rounded to two decimal places$)$

$($use interpolation method with two consecutive percentages$)$

$1\mathrm{.}4$

Calculate the accounting rate of return on average investment for option $1(3$ marks$)$

$($answer to be rounded to two decimal places$)$

$1\mathrm{.}5$

Based on the Net present value calculated, which option should be chosen if these were independent projects