Alia company is considering the purchase of a new machine. Two alternative machines X and...
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Accounting
Alia company is considering the purchase of a new machine. Two alternative machines X and Y have been suggested, each having an initial cost of 800,000 SR. Earning after taxation are expected to be as follows:
Years
Cash Inflows Machine X (SR)
Cash Inflows Machine Y (SR)
1
160,000
130,000
2
180,000
260,000
3
250,000
210,000
4
220,000
190,000
5
170,000
110,000
The company has targeted of return on capital of 8% and on this basis, you are required to compare the profitability of the machines and state which alternative you consider financially preferable. The present value of 1 (one) SR at 8% is 0.926, 0.857, 0.794, 0.735, and 0.681 respectively from first to fifth year.
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