Dreams company listed on Stock Exchange.The company is considering the purchase of new machine which is expected to save labour on the existing project.

The estimated data for the 2 machines were available from the market.You are the Financial Director of the company your staff under strict supervision carried out the investment appraisal using six investment appraisal techniques.Cost of Capital is 10% per annum.The results of appraisal for each technique are set out below:

Machine AMachine B

Net Present Value$17,940$39,370

Internal Rate of Return16.4%20.1%

Payback period in years33²/₇

Accounting Rate of Return10.0%16.7%

Gross Profitability Index1.201.80

Net Profitability Index0.200.80

Required

You are to write a memo to the board advising on which machine be selected under each criterion.

How does a capital budget differs from the revenue decision?