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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
XYZ Ltd is considering purchasing a new machine, and the relevant facts concerning two possible choices are as follows:
| Â |
Machine A |
MachineB |
|
Capital expenditure required |
£65,000 |
£60,000 |
|
Estimated life in years |
4 |
4 |
|
Residual value |
nil |
nil |
|
Cash flow after taxation each year |
£25,000 |
£24,000 |
The company’s cost of capital is 10%.
Required
Calculate, for each machine, the payback period, the net present value and the profitability index. State, with reasons, which machine you would recommend.
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