Question 3: Capital Budgeting and Investment appraisal (20 marks) STSC Plastics Limited is planning to purchase a new material handling machine for its manufacturing unit. The company is considering the following four mutually exclusive investments. The required payback period is five years. The company tax rate is 28%. The financial data for the four machines are given below. Machine Machine A Machine B Machine C Machine D $ 1,900,000 $ 3,192,000 $ 2,080,000 $ 2,200,000 Revenue 960,000 1,476,000 1,160,000 1,040,000 Operational costs 360,000 400,000 378,182 464,000 Depreciation on machinery Interest on borrowings 140,000 210,000 165,000 182,000 3,600,000 5,200,000 4,160,000 Machine Cost 4,640,000 10 13 11 10 Machine life (years) The manufacturing department has requested the chief financial officer (CFO) to evaluate the above investment opportunities using both payback period and internal rate of return (IRR) methods. Required: (a) Calculate each machine's payback period and state which| alternative should be accepted based on this criterion. (6 marks) (b) Calculate each machine's internal rate of return (IRR), and using a hurdle rate of 17%, state which of the alternatives is acceptable by this criterion. (8 marks) (C) Discuss why the above two investment appraisal methods do not give consistent answers for the accept/reject decision. Which method should the CFO employ? Why? (6 marks)