Malaise Ltd produces and sells bags in the state of Victoria, Australia. Guillermo, the manager of Malaise Ltd, estimates that if it invests $250,000 in a machine it can save $80,000 in annual cash operating costs. The new machine has an expected useful life of 3 years with $10,000 terminal value, and it is assumed that Malaise Ltd will use the straight-line method for depreciation of the new machine. The required rate of return is 8%. GST issues are to be ignored and all cash flows are assumed to occur at year end with the exception of the initial investment amounts.

Required: (showing all workings

For each of the three methods of comparison set out below: analyse the investment plan of Malaise Ltd and comment on whether or not to accept the investment:

(a) Net Present Value (NPV)

(b) Payback Period

(c) Accrual Accounting Rate of Return

(8 marks)

PRESENT VALUE TABLES

Present Value of an ordinary annuity of $1 2% 3% 4% Period 1% 5% 6% 7% 8% 9% 10% 1 0.99 0.98 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 1.97 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 4 3.902 3.808 3.717 3.63 3.546 3.465 3.387 3.312 3.24 3.17 5 4.853 4.713 4.58 4.452 4.329 4.212 4.1 3.993 3.89 3.791 6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 7 6.728 6.472 6.23 6.002 5.786 5.582 5.389 5.206 5.033 4.868 8 7.652 7.325 7.02 6.733 6.463 6.21 5.971 5.747 5.535 5.335 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 10 9.471 8.983 8.53 8.111 7.722 7.36 7.024 6.71 6.418 6.145 Present Value table of $1 Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1 0.99 0.98 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 0.98 0.961 0.943 0.925 0.907 0.89 0.873 0.857 0.842 0.826 3 0.971 0.942 0.915 0.889 0.864 0.84 0.816 0.794 0.772 0.751 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.65 0.621 6 0.942 0.888 0.837 0.79 0.746 0.705 0.666 0.63 0.596 0.564 7 0.933 0.871 0.813 0.76 0.711 0.665 0.623 0.583 0.547 0.513 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.54 0.502 0.467 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.5 0.46 0.424 10 0.905 0.82 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386