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Q. 3. Tulips Ltd is considering the purchase of a new machine that is expected to save labor on an existing project.
The estimated data for the two machines available on the market are as follows:
Machine A (000) Machine B (000)
Initial cost (year 0) 120 120
Annual labor cost savings:
Year 1 40 20
2 40 30
3 40 50
4 20 70
5 40 50
Required:
Which machine will be selected under the following criteria?
- NPV, assuming a cost of finance of 9 percent p.a.
- IRR
- ARR
- PBP
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