Simon Ross has been considering the problem of replacing one of his twisting machines for his woollen garment manufacturing company. He has discussed the issue with his brother, Stephen, who is the financial director of the family business, Ross Bros. Ltd. Apparently there are three possible alternative machines that could be purchased: A Quad-Twist 44, a new automated version of the present machine, manufactured by Core-Tex of Bradford. An Auto-Twist 55, manufactured by a German company. A Twister 66, made in Japan. Each machine would cost approximately 100,000 (to be paid immediately). Approximate residual values for the UK, German and Japanese machines are 2,000, 2,500 and 1,500 respectively. In discussion, Stephen stressed the need for a proper evaluation of the alternatives and made the point that the first step was to accurately estimate the incremental operating cash flows for each of the alternatives. Simon and Stephen have done this, and produced the following figures: Net Cash operating UK German Japanese inflows by your Oud-TwiAuto-Twist Twist 2 Year Year 2 Year 3 Year 4 0.000 30.000 30.000 400000 30.000 30.000 30000 30000 10.000 30.000 Year 34.000 So 10.000 Ross Bros. Ltd. has a cost of capital of 10%. 10% discount rate Yr 1:0.9090 Yr 2.0.X264 Yr 3:0.7513 Yr4068 Yr 5:0.6204 Yr 6:0 5645 Required (a) Calculate the payback period, ARR and NPV for each of the projects. (b) Based on your numerical calculations in (a) advise the directorate on which project they should select. (c) Discuss any other factors that the directors should consider in appraising the acquisition of the new machine