Turners Ltd is considering the purchase of a new machine that is expected to save labour on an existing project. The estimated data for the two machines available on the market are as follows:

Which machine will be selected under the following criteria?

(a) NPV, assuming a cost of finance of 10 per cent p.a.

(b) IRR

(c) ARR

(d) PBP.
Ignore taxation throughout, and treat the savings as if they will occur at the end of the relevant year.

Transcribed Image Text:

Machine A Machine B 000 Initial cost (year 0) Residual value of machines (year 5) Annual labour cost savings: Year 1 2 3 000 120 220 45 120 30 40 40 40 20 20 28822 20 30 50 70 20