Self-test Why Ltd contemplates the purchase of a new machine to produce additional units of its product. It has a choice of three different machines, each of which have similar technical specifications, but have different costs.

The company prepares a forecast of its cash flows covering each of the three machines.

Machine A Machine B Machine C Purchase price 150,000 180,000 165,000 Net cash flows Year 1 45,000 36,000 30,000 Year 2 45,000 42,000 39,000 Year 3 45,000 90,000 39,000 Year 4 30,000 60,000 75,000 Year 5 24,000 45,000 75,000 The management of Why Ltd use the payback method to assist them in deciding which machine it should choose.

You are required to show your workings and state clearly the recommendation you would make to the company