LS1604: S Limited is considering for purchase of a machine. There are two possible machines which will produce the additional output. Details of these machines are as follows

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Question: S Limited is considering for purchase of a machine. There are two possible machines which will produce the additional output. Details of these machines are as follows:

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Other Information:

The costs shown above relate to annual expenditure resulting from each machine.
Sales are expected to continue at the rates shown for each year for the full life of each machine;

Tax to be paid may be assumed at 50% of net earnings;

Interest on capital is to be ignored;

The appropriate rate of interest for converting to present value may be taken at 10%.

On the basis of the facts given above,
show the most profitable investment by the following methods.

Pay-back Period,

Return on Investment; and

Net Present Value on Investment.


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