Management accounting Q3

Question 3 (14 marks) OneEver Media Limited is a multi-media and publishing company in Hong Kong. The managers are currently considering purchasing a new digital printing machine which would allow the company to increase its print publishing capacity. The printing machine costs $1,240,000. The machine would be depreciated over four years, after which the company would sell the machine for an estimated value of $360,000 and re-evaluate the success of this line of business. Additional servicing of the machine would be required by the manufacturer of the machine during the second year at a cost of $47,500, to be expensed against income in that year. The managers estimate that the new machine would generate annual revenues of $620,000, fixed costs of $270,000 for each year (including depreciation), and would have a contribution margin ratio of 60%. The company's required rate of return is 6%. (Ignore income taxes in this question.) Required: (a) Compute the project's net present value. (5 marks) (b) Compute the project's profitability index. (2 marks) (c) Compute the project's payback period. (2 marks) (d) Compute the project's accounting rate of return (ARR) or simple rate of return using the average investment method. Round your answer to two decimal places. (3 marks) (e) Using the data that you have calculated in (a) (d), explain whether OneEver Media should purchase the new machine and why or why not. (2 marks) (Total for Question 3: 14 marks)