QUESTION 1 [25 MARKS] Operation Kalahari Desert Ltd is considering investing in a new machine in order to reduce operations costs over the next five years. Machine X and Y are currently being considered the details of which are as follows: Y Capital cost N$300,000 N$350,000 Residual value N$50,000 N$70,000 Annual cost savings N$30,000 N$56,000 The above cost savings have been calculated after the deduction of depreciation on a straight- line basis over the life of the investment. Because of liquidity considerations, the managing director states that the project should have a payback period of less than four years. The company's cost of capital is 10%, the discounts factors for which are: Year 1 Year 2 Year 3 Year 4 Year 5 0.909 0.826 0.751 0.683 0.621 Required: a. Evaluate each of the machines X and Y using the following methods: i. Accounting rate of return using the average capital invested(using profits not cash flows) Payback period(using cash flows not profits) Net Present Value (16) ii. . b. Advise management, giving reasons, as to which machine to purchase. (4) c. Calculate for each machine, a discounted payback period (using discounted cash receipts), and state whether this would have any effect on your answer to (b) above