To increase production of shoes, Gaborone Sports Manufacturers is considering purchasing a

new computerised shoe making machine. The company has two options with the following

details:

Description Machine ShX$1$ Machine ShX$2$

Initial cost P$600,000$ P$600,000$

Cost of capital $12\%12\%$

Scrap value $50,0000$

Depreciation per year P$110,000120,000$

Expected cash flows

Year $190,000160,000$

Year $2150,000160,000$

Year $3180,000160,000$

Year $4160,000160,000$

Year $5120,000160,000$

Required

a$)$ Calculate the Pay Back Period for both machines $($expressed in years, months and days$)$

$(4$ marks$)$

b$)$ Determine the Accounting Rate of Return $($ARR$)$ of each machine and recommend the best

option. $(6$ marks$)$

c$)$ Calculate the Net Present Value for both machines and give advice on the best option

$(6$ marks$)$

d$)$ Calculate Internal Rate of Return for machine ShX$2(4$ marks