Question $4$ ABC Limited is looking to expand its operations and increase its market share in the cell phone industry. To achieve this, they are looking to increase its$|$ current productive capacity of $1000000$ cell phones a year by at least $\backslash (6\backslash \%\backslash )$ for each of the next $5$ years. It is considering two cell phone making machines and is unsure which to purchase: Cell Phone Machine A: Cell Phone Machine A can be imported at a landed purchase cost of R$800000$ and a further R$200000$ transport and installation costs will have to be incurred to get it ready for production. This machine is expected to last $5$ years after which time it cannot be sold. Net cash flow from the sale of the additional production is expected to be R$220000,$ R$280000,$ R$400000,$ R$420000$ and R$200000$ respectively over the $5-$year lifespan of the machine. This machine will enable ABC Limited to achieve a $\backslash (4\backslash \%\backslash )$ increase in productive capacity. Cell Phone Machine B: Cell Phone Machine B can be purchased locally for R$1000000$ and will also have a useful life of $5$ years. It will not have any resale value at the end of the $5$ years and will be disposed of$.$ Net cash inflows from additional production will amount to R$300000$ per annum for each of the five years. This machine will enable ABC Limited to achieve a $\backslash (2\backslash \%\backslash )$ increase in productive capacity. Additional information: ABC Limited requires a return on capital of $\backslash (15\backslash \%\backslash )$ for all investments made. The depreciation policy is to depreciate all non$-$ current assets on a straight$-$line basis. Assume that all cash flows occur at the end of each financial year except for the initial investment which occurs in period $0.$ It has already been determined that the internal rate of return is $\backslash (15\mathrm{.}23\backslash \%\backslash )$ for Cell Phone Machine A and $\backslash (16\mathrm{.}19\backslash \%\backslash )$ for Cell Phone Machine B The capital expenditure committee has indicated that R$2000000$ is available for this capital expenditure. In terms of the company's capital expenditure policy, only projects with a payback period of less than four years are accepted. REQUIRED You are the financial manager at ABC Limited and have been asked by the Board of Directors to advise them on which machine$/$s to authorize for purchase. Using appropriate capital budgeting techniques, compile a report to the Board of Directors detailing the option that should be chosen.