Reference no: EM132468582

High Tech Inc. is considering replacing a hand operated machine with a brand new fully automated machine. The

company has two types of machine to choose and they are mutually exclusive. The firm's cost of capital is 14

percent. Below are the expected cash flows generated by both machines.

                                          Machine XX               Machine YY

Initial Investment                     RM 80,000           RM 50,000

Year 1                                    RM 15,000           RM 15,000

Year 2                                   RM 20,000            RM 15,000

Year 3                                    RM 25,000            RM 15,000

Year 4                                     RM 30,000            RM 15,000

Year 5                                      RM 35,000          RM 15,000

Calculate the following:

Question a) Payback period for both machines

Question b) Net present value for both machines

Question c) Profitability index for both machines

Question d) Internal rate of return for Machine YY

Question e) Which machine should the company choose?