SECTION A The directors of Madura limited are contemplating the purchase of new machine to replace a machine which has been in operation in the factory for the last 5 years. Ignoring interest but considering tax at 50% of net earnings, suggest which of the two alternatives should be preferred. The following are the details: Details Old machine Purchase price R40 000 Useful life 10 years Running hours per year 2 000 Units per hour 24 Wages per running hour R3 Power per annum R2 000 Consumables per month R500 All other charges per month R666.67 Material cost per unit R0.50 Selling price per unit R1.25 New machine R60 000 10 years 2 000 36 R5.25 R4 500 R625 R750 R0.50 R1.25 Depreciation is charged on a straight line basis. 1.1 Required: (8 points) Compare accounting profits for both old and new machine. 1.2 (8 points) Assess the returns on i) original investment, ii) average investment method and return on incremental investment 1.3 (4 points) Draft a recommendation on whether the old machine should be replaced or not