Q.3. Alia company is considering the purchase of a new machine. Two alternative machines C and D have been suggested, each having an initial cost of 520,000 SR and requiring 30,000 SR as additional working capital at the end of first year. Earning after taxation are expected to be as follows:

Years	Cash Inflows Machine C (SR)	Cash Inflows Machine D (SR)
1	136,000	160,000
2	148,000	180,000
3	175,000	215,000
4	190,000	185,000

The company has targeted of return on capital of 5% and on this basis, you are required to compare the profitability of the machines and state which alternative you consider financially preferable. The present value of 1 (one) SR at 5% is 0.952, 0.907, 0.864, and 0.823 respectively from first to fourth year.