Answer Happy

Discount Factors for given discount (inflation) rates over a 5-year period Years 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 1 2 3 4 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 5 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 Table Qla (iii)

a) A project requires the purchase of a new piece of machinery. You are the project manager and must choose between three potential machines (Machine A, Machine B and Machine C), either of which would be suitable. The cost of each machine is identical at £1,634,500. However, they differ in performance such that the projected future cash flows are different for each machine. Projected cash flows over a 5 year period are shown in Table Qla: Year Cash Flow: Machine A 0 -£1,634,500 1 950,000 2 700,500 3 560,500 4 240,000 5 130,000 Cash Flow: Machine B -£1,634,500 950,000 684,500 600,000 575,000 550,000 Table Qla. Cash Flow: Machine C -£1,634,500 200,000 280,000 440,000 600,000 800,000 (1) Show the Payback period and Total Income for each machine (Machine A, Machine B and Machine C). NOTE: ALL calculations must be shown. (ii) For each machine (Machine A, Machine B and Machine C) calculate Return on Investment (ROI). NOTE: ALL calculations must be shown. (iii) For each machine (Machine A, Machine B and Machine C) calculate the Net Present Value (NPV) after 5 years assuming a discount (inflation) rate of 5% for each year of the project. Table Qla(iii) provides a list of discount factors for a range of discount (inflation) rates. NOTE: ALL calculations must be shown. b) The project manager can purchase one machine only. State which machine the project manager should select and provide justification for their choice of machine based on your analysis of the data.