Q. 3. Tulips Ltd is considering the purchase of a new machine that is expected to save labor on an existing project.

The estimated data for the two machines available on the market are as follows:

Machine A (000) Machine B (000)

Initial cost (year 0) 120 120

Annual labor cost savings:

Year 1 40 20

2 40 30

3 40 50

4 20 70

5 40 50

Required:

Which machine will be selected under the following criteria?

1. NPV, assuming a cost of finance of 9 percent p.a.
2. IRR
3. ARR
4. PBP