QUESTION 3 A manufacturing company wants to purchase a new metal stamping machine. Two options are available, machine A and machine B. The expected cash inflow from each machine over five years is shown in the table below. Machines are scrapped after five years. The expected cash inflow Year Machine A 1 2 3 4 5 65,000 65,000 65,000 65,000 65,000 Machine B 80,000 80,000 80,000 80,000 80.000 Machine A will cost K228 000 and machine B will cost K344 000 to purchase. Assume a cost of capital of 10% p.a. PM/02/2023 Which machine would be more profitable to purchase today? Appraise these projects using NPV method. (10 marks) The End! Page 3

OUESTION 3 A manufacturing company wants to purchase a new metal stamping machine. Two options are available, machine A and machine B. The expected cash inflow from each machine over five years is shown in the table below. Machines are scrapped after five years. Machine A will cost K228000 and machine B will cost K344000 to purchase. Assume a cost of capital of 10% p.a. Which machine would be more profitable to purchase today? Appraise these projects using NPV method. (10 marks)