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Section 2 Fritz Group also planning to become a more sustainable business, in line with the UKS Green Industrial Revolution's target. Fritz Group has identified a 'green' replacement to 1 of its aging production machines. Alternatively, Fritz can lease a different machine. Machine A Purchase cost Expected life Net realisable value Unit produced and sold (litre) Sales price / litre Variable cost/ litre Comments 200,000 5 years 10,000 112,000 First year's projection, based on the maximum machine's capacity Capacity is expected to increase by 5% annually from year 2 onwards 1.00 First year's projection Price is expected to increase annually by 4% from year 3 onwards 0.45 First year's projection Price is expected to increase annually by 2% from year 2 onwards. 20,000 Per annum. This is the plant's operational cost which incurred regardless of machine buying decision. The amount is expected to remain unchanged for the next 5 years This cost doesn't include depreciation expense related to the proposed) new machine. Fixed cost Other information: 1. Fritz Group uses a discount rate of 10% for appraising new projects or assets. 2. Fritz Group adopts the straight-line method to depreciate its assets. 3. With exception of purchasing cost which incurred at the beginning of year 0, other cash inflows or outflows are assumed to occur at the end of the year. 4. Assume that tax obligation is zero for the next 5 years. Required: a) Considering all the information above, prepare Income Statement showing net profit / (loss) for the next five year. (14 marks b) Using information in (a), calculate Machine A's: i Accounting Rate of Return (ARR) ii. Payback Period iii. Net Present Value (NPV) (16 Marks c) Based on your findings, recommend whether Fritz Group should buy Machine A, considering the assumptions and limitations of the appraisal techniques in (c) and other relevant factors, if any. (10 Marks Total marks: 4