Uuestion #1 (2D marks) CLU 2 The Welding Shop Ltd. is considering investing in one...
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Uuestion #1 (2D marks) CLU 2 The Welding Shop Ltd. is considering investing in one of two machines - Drill or Grinder. The initial cost and net cash inflows from each machine are shown below. The discount rate for both machines is 5% per cent. Cash Flow Drill Grinder $ $ Initial Cost 400,000 400,000 Net Cash Inflows Year 1 190,000 220,000 Year 2 120,000 150,000 Year 3 110,000 100,000 Year 4 90,000 80,000 Year 5 50,000 130,000 Discount factors for the machines at 5% per annum Year Factor 1 0.9524 2 0.9070 3 0.8638 4 0.8227 5 0.7835 equired: (a) Calculate the payback period for each machine and identify the machine in which the company should invest, giving ONE reason for you choice. Calculate the accounting rate of reternal on initial capital for each machine.
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