b) Braemar Council wishes to evaluate an investment in machinery used in manufacturing of new type of heating system. "Inverter". The "Inverter" would enable the Braemar Council to address the increasing demand for eco-friendly heating systems in housing and business sectors. The Braemar Council is not sure which Machine to invest in. They have the option to choose from 3 different machines. Life of the machines and the purchase prices are as follows. Mach A Machine B Machine C 300,000 360,000 510,000 Initial investment () 4 years 5 years 3 years Life of the machine In each case the initial investment represents the purchase of plant and equipment whose residual value will be 20% of initial cost, receivable in addition to the net cash flow, at the end of the life of the project. Forecast sales volume, selling price and other costs are as follows: Sales volume (units/year) Selling price per unit () Variable cost per unit () Fixed cost per annum () Machine A 500 1,200 720 80,000 Machine B 450 1,200 650 80,000 Machine C 650 1,200 570 130,000 The machine B and C have only recently been introduced to the market and has not been fully tested in operating conditions. Because of the higher risk involved, the appropriate discount factor for the machine B and C is believed to 12% per year, 2% higher than the discount rate for Machine A. Requirement For each of the three projects: 1. Calculate the accounting rate of return (based on the average investment method). 3 marks Calculate the payback period. 1.5 marks III. Calculate the net present value. 3 marks