Reference no: EM132452381

Problem - The Vivek & Co. Ltd is considering the purchase of a new machine. Two options have been suggested, each costing Rs. 400,000. Earnings after taxation but before depreciation are expected to be as follows

Year	Machine X Rs.	Machine Y Rs.
1	40,000	120,000
2	120,000	160,000
3	160,000	200,000
4	240,000	120,000
5	160,000	80,000

The Company has a target rate of return on capital @ 10% and Depreciation rate is 20% (straight line method). On this base, you are required

a) To compare profitability of the machines and state which option you consider financially favourable

b) Also work the Pay-back Period and

c) ARR for each project.