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(6 marks) (c) A manufacturing company is evaluating two new capital expenditure projects. The directors have just signed a new contract to supply their goods
(6 marks) (c) A manufacturing company is evaluating two new capital expenditure projects. The directors have just signed a new contract to supply their goods to a large company. In this regards, the directors have undertaken an investigation of the possible purchase of a new machinery. The contract will last for a five-year period beginning on 1 January 2011 and ending on 31 December 2015. The cost of the Machine A is Rs 45,000, while the cost of Machine B is Rs 27,500, with either payment being due on 1 January 2011. The contribution from each machine is tabulated as follows, with the inflow of funds. The financial manager is unsure of the cost of capital, but expects it is around 12%. REQUIRED (i) Calculate the payback period for each alternative. (4 marks) (ii) Establish the net present value of each plan, assuming a 12% cost of capital. (4 marks)
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