A firm is considering the purchase of one of two machines The first (machine A) costing S4200, is expected to bring in revenues of $1000, S2000 and $1500 respectively at the end of the 3 years for which it will be operative while the second (machine B), which costs S4500, is expected to produce revenues of $1000, s1800 and $2000, and has the same lifetime Neither machine will have any appreciable scrap value at the end of its life The opportunity cost is 8 (present your answers two decimal places) D1) Draw the cash flow diagrams and compare the internal rates of return (IRR) of these two investments What is your investment recommendation on these two machine purchases D2) What is the implicit assumption about how interim cash flows are reinvested in the calculation of internal rate of return How would IRR of these two machine investments change if the opportunity cost rises to 10 D3) Write down the equation of net present value (NPV), and calculate the NPVS of machine A and machine B with the opportunity cost of capital 8 Compare and contrast IRR and NPV methods for evaluating which machine should be purchased if only purchase one A firm is considering the purchase of one of two machines The first (machine A) costing S4200, is expected to bring in revenues of $1000, S2000 and $1500 respectively at the end of the 3 years for which it will be operative while the second (machine B), which costs S4500, is expected to produce revenues of $1000, $1800 and S2000, and has the same lifetime Neither machine will have any appreciable scrap value at the end of its life The opportunity cost is 8 (present your answers two decimal places) D1) Draw the cash flow diagrams and compare the internal rates of return (IRR) of these two investments What is your investment recommendation on these two machine purchases (10 marks) D2) What is the implicit assumption about how interim cash flows are reinvested in the calculation of internal rate of return How would IRR of these two machine investments change if the opportunity cost rises to 10 (6 marks) D3) Write down the equation of net present value (NPV), and calculate the NPVs of machine A and machine B with the opportunity cost of capital 8 Compare and contrast IRR and NPV methods for evaluating which machine should be purchased if we only purchase one (14 marks)

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A firm is considering the purchase of one of two machines. The first (machine A) costing S4200, is expected to bring in revenues of $1000,

D1) Draw the cash flow diagrams and compare the internal rates of return (IRR) of these two investments. What is your investment recommendation on these two machine purchases?

D2) What is the implicit assumption about how interim cash flows are reinvested in the calculation of internal rate of return? How would IRR of these two machine investments change if the opportunity cost rises to 10%.

D3) Write down the equation of net present value (NPV), and calculate the NPVS of machine A and machine B with the opportunity cost of capital 8%. Compare and contrast IRR and NPV methods for evaluating which machine should be purchased if only purchase one.

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A firm is considering the purchase of one of two machines. The first (machine A) costing S4200, is expected to bring in revenues of $1000, S2000 and $1500 respectively at the end of the 3 years for which it will be operative; while the second (machine B), which costs S4500, is expected to produce revenues of $1000, $1800 and S2000, and has the same lifetime. Neither machine will have any appreciable scrap value at the end of its life. The opportunity cost is 8%. (present your answers two decimal places) D1) Draw the cash flow diagrams and compare the internal rates of return (IRR) of these two investments. What is your investment recommendation on these two machine purchases? (10 marks) D2) What is the implicit assumption about how interim cash flows are reinvested in the calculation of internal rate of return? How would IRR of these two machine investments change if the opportunity cost rises to 10%. (6 marks) D3) Write down the equation of net present value (NPV), and calculate the NPVs of machine A and machine B with the opportunity cost of capital 8%. Compare and contrast IRR and NPV methods for evaluating which machine should be purchased if we only purchase one. (14 marks)