QUESTION 4 (25 marks) Quatsch Ltd. intends to buy a new machine for production. Calculations for Machine A have already

[answerhappygod]

Question 4 25 Marks Quatsch Ltd Intends To Buy A New Machine For Production Calculations For Machine A Have Already 1 (69.08 KiB) Viewed 17 times

QUESTION 4 (25 marks) Quatsch Ltd. intends to buy a new machine for production. Calculations for Machine A have already been prepared as follows: Payback Period 2 years Net Present Value £1,500 Machine B costs £12,000 and has a scrap value of £3,000. A special technical report was carried out for this machine costing £1,000. The company uses a 9% discount rate. Net operating cashflows for Machine B. Year 1 Year 2 Year 3 £ 7,000 4,000 2,000 a) Why is it important to appraise capital investments? (3 marks) b) Make similar calculations (to those for Machine A) for Machine B. (6 marks) c) Discuss with reasons which machine should be chosen. (7 marks) d) Explain the meaning of the Internal Rate of Return (IRR) and describe the method of calculating the IRR for Machine B. (Do not calculate the IRR for Machine B) (4 marks) e) What qualitative factors should be considered when purchasing a machine from an overseas supplier? (5 marks)