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A client of yours is experiencing expanding of his business rapidly, he needs to consider if he should purchase a new machine for his business.

A client of yours is experiencing expanding of his business rapidly, he needs to consider if he should purchase a new machine for his business. He has come to you for your advice. The relevant details are provided below, Machine cost $120,000 Expected operating life 5 years Expected scrap value at the end of 5 years $20,000 Annual depreciation $20,000 Expected annual cash inflows from operations $40,000 a. What is the payback period? Please show calculation. (5 marks) b. What is the advantages and disadvantages of using payback period as your investment decision? (5 marks)

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