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been suggested, each costing GH400,000. Earnings after taxation but before depreciation are expected to be as follows Year Machine X GHC Machine Y GHC.

1 2 3 4 5 40,000 120,000 160,000 240,000 160,000 120,000 160,000 200,000 120,000 80,000

The Company has a target rate of return on capital @ 10% and Depreciation rate is 20% (straight line method). On this base, you are required a) Compare the profitability index of the machines and state which option you consider financially favourable b) Calculate the Pay-back Period (PB) for each project c) Calculate the return on capital employed (ROCE) for each project. d) Internal Rate of Return (IRR) for each project

The Vivek & Co. Ltd is considering the purchase of a new machine. Two options have been suggested, each costing GH400,000. Earnings after taxation but before depreciation are expected to be as follows Year Machine X GHC Machine Y GHC.

1 2 3 4 5 40,000 120,000 160,000 240,000 160,000 120,000 160,000 200,000 120,000 80,000

The Company has a target rate of return on capital @ 10% and Depreciation rate is 20% (straight line method). On this base, you are required a) Compare the profitability index of the machines and state which option you consider financially favourable b) Calculate the Pay-back Period (PB) for each project c) Calculate the return on capital employed (ROCE) for each project. d) Internal Rate of Return (IRR) for each project