QUESTION 1 The accounts manager of VM Gym & Sports has been asked to evaluate a potential capital investment of a set of rowing machines. The following data is available for each project: Machine 1 Machine 2 RM RM Cost (immediate outlay) 500,000 245,000 Expected annual profits (losses) Year 1 T 80,000 84,000 Year 2 90,000 136,000 Year 3 116,000 126,000 Year 4 146,000 150,000 Annual running costs 30,000 24,000 Annual service costs 36,000 20,000 Estimated residual value equipment 40,000 30,000 The total annual running and service costs for Machine 2 in the first year is RM 36,000 The committee has estimated a cost of capital of 30% and employs the straight-line method of depreciation for all fixed assets when calculating net profit. The following discount factors are given: Year Cost of capital 10% 50% 1 0.909 0.667 2 0.826 0.444 3 0.751 0.296 4 0.683 0.198