An incorporation is considering the purchase of a new packaging machine to have a more creative and innovative packaging

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An incorporation is considering the purchase of a newpackaging machine to have a more creative and innovative packagingdesign. The manager thinks that an innovative packaging design willhave a positive impact on sales and the purchasing experience forthe customer.
-The initial outlay of the machine is 12,500,000
-Each year the operation inflows are equal to AED 5,000,000
-During the third year the equipment will require maintenancewith the cost of 1,000,000
-The required rate of return on this project is 10 percent.
-One of the objectives is to cover the initial outlay in 3years.
Based on the above information,
1.Calculate the annual net cash flow. 1 Mark
Year
Cash Flows
0
1
2
3
4
5
2. Based on each of the following capital budgeting criteria,recommend if the firm should conduct the project or not. Justifyyour answer. (Show all the steps of your work) 9 Marks
Payback 1 Mark
Years
Cash flows
………………………….
Justify your final decision
b. Discountedpayback method: 3marks
Years
Cash flows
………………………….
………………………..
Justify your final decision
c. Netpresent value (NPV) 2marks
Steps
Values
Justify your final decision
Result
d. Internal rateof return (IRR) 2marks
Steps
Values
Justify your final decision
Result
e. ProfitabilityIndex (PI) 1 mark
Formula:
Calculation:
Result and decision