Question 3 (20 marks) Namibia Trading Limited ("NTL") has the choice of purchasing one of two machines namely, Machine A and Machine B. Both machines have five year useful life, with only Machine A having a residual value of N$300 000. The annual volume of production for both machines is estimated at 200 000 units, which can be sold at N$20 per unit. Depreciation is calculated on the machines using the straight line method (cost method). Machine A costs N$4 800 000 excluding installation cost of N$300 000. The annual operating costs are estimated at N$380 000 (excluding depreciation). A major overhaul at a cost of N$200 000 is expected to be undertaken at the end of year three. Fixed costs are estimated at N$2 100 000 (excluding depreciation). Machine B costs N$5 100 000 including installation cost of N$400 000. The annual operating costs are estimated at N$330 000 (excluding depreciation). Fixed costs are the same as Machine A. The weighted average cost of capital is 14%. Required Marks Sub- Total total 6 6 10 16 Calculate the payback period of Machine A and Machine B (answer must 3.1 be expressed in years, months and days). Use the net present value method to determine which machine should be 3.2 purchased by the company. Calculate the accounting rate of return (on average investment) of 3.3 Machine B. Total 4 20 20