A manufacturing firm is considering whether to invest in one of the 2 automated machines, A or B both of which give rise to manpower and other cost savings over the existing manual process. The relevant data relating to each of the machines is given in the following table; Machine A ($) Machine B ($) Investment Outlay (payable immediately) (100,000) (120,000) Year 1 annual cost savings 60,000 50,000 Year 2 annual cost savings 50,000 45,000 Year 3 annual cost savings 40,000 40,000 Year 4 annual cost savings 20,000 35,000 The required rate of return is 15% per annum Required; (c) Further discussion with the Machines Supplier revealed that machine A has a salvage value of $ 10,000 and machine B has a salvage value of $ 40,000. (c) Further discussion with the Machines Supplier revealed that machine A has a salvage value of $ 10,000 and machine B has a salvage value of $ 40,000.

1. Compute the present value of cash inflows generated by both the proposals assuming a discount rate of 15%.

(b) Advise Rongai Company Ltd on which proposal to invest in using the NPV

Comparison of two proposals using net present value (NPV) method:

(c) Further discussion with the Machines Supplier revealed that machine A has a salvage value of $ 10,000 and machine B has a salvage value of $ 40,000. method (5 Marks)