UVW Enterprises is deciding on purchasing one of two pieces of machinery. The firm’s discount rate is 15% and the tax rate is 28%. The machinery details are:

Machine X:

• Cost: $650,000
• Expected Life: 5 years
• Annual Income before Depreciation & Tax: $140,000
• Depreciation: Straight line basis

Machine Y:

• Cost: $950,000
• Expected Life: 6 years
• Annual Income before Depreciation & Tax: $190,000
• Depreciation: Straight line basis

Requirements:

1. Compute the payback period.
2. Compute NPV.
3. Compute IRR.
4. Evaluate the profitability index.
5. Advise on the better machine.