Nchanga Demolishers Limited intends purchasing a new demolishing machine. The following information relating to the machine...

  

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Nchanga Demolishers Limited intends purchasing a new demolishing machine. The following information relating to the machine is available. Cost of machine Expected useful life Scrap value Method of depreciation Cost of Capital K120, 000,000 6 years K80, 000,000 Straight line 14% Year Cash flow Profit 1 20,000,000 24,000,000 56,000,000 40,000,000 60,000,000 2,000,000 6,000,000 38,000,000| 22,000,000 42,000,000 3 4 5 Q.1. a) What are relevant costs in investment appraisal decision making? b) Contrast between payback period and accounting rate of return (ARR. c) Using the information in the case study above calculate the following : i) 11) Payback period for the new machine in months. Net present value (NPV) for the new machine and advise if Nchanga Demolishers Limited should invest in this machine. Nchanga Demolishers Limited intends purchasing a new demolishing machine. The following information relating to the machine is available. Cost of machine Expected useful life Scrap value Method of depreciation Cost of Capital K120, 000,000 6 years K80, 000,000 Straight line 14% Year Cash flow Profit 1 20,000,000 24,000,000 56,000,000 40,000,000 60,000,000 2,000,000 6,000,000 38,000,000| 22,000,000 42,000,000 3 4 5 Q.1. a) What are relevant costs in investment appraisal decision making? b) Contrast between payback period and accounting rate of return (ARR. c) Using the information in the case study above calculate the following : i) 11) Payback period for the new machine in months. Net present value (NPV) for the new machine and advise if Nchanga Demolishers Limited should invest in this machine.