Question Kingston Pic is considering the purchase of a new machine. It has identified two possible machines with initial costs and expected cash savings per year as follows: GE GE -100,000 -100,000 GE 32,000 Machine A Machine B GE 40,000 40,000 20,000 18,000 36,000 95.000 Machine A has a useful fe of 4 years while machine B has a useful life of 3 years. Neither of these machines has any residual value at the end of their lives. The two machines are mutually exclusive. The opportunity cost of capital for Kingston Plc is 9% per year. Kingston Pic is going to replace the chosen machine each time when it reaches the end of its useful life, which machine would you recommend the management to invest? (a) The equivalent annual values of machine A, B are 6,330 and 4747, respectively. A should be bought {b} The equivalent anrial values of machine A, B are 5,000 and 6797, respectively. B should be bought (c) The equivalent annual costs of machine A, B are 64,676 and 5,77%, respectively should be bought (c) The equvalent annual costs of machine A, B are 4,678 and 4,557, sespectively. A should be bought Birkbeck College 2020/21 Page 4 of 18 Question 2 Still looking at Question 1, using the discount rate 5% and 17%, what is the internal rate of return of machine A? (a) 12.97% (b) 10.45% Ic) 14.19% (d) 7.85%