Reference no: EM132547937

The Roll Company Ltd is thinking about investing in a large machinery that will see the company becoming one of the top companies within the manufacturing industry. The following information relates to the proposed machinery for investment:

                                                             Machine A                Machine B                     Machine C

Initial investment in project               $90,000               $90,000                       $90,000

Annual cash increase in operations:

Year 1                                           80,000                   45,000                         90,000

Year 2                                         10,000                        45,000                          0

Year 3                                          45,000                           45,000                        0

The company's cost of capital is 14%. Estimated useful life of each project is

Required:

Question (a) Compute the following for each project:

(i) Payback period

(ii) Net present value

(iii) Profitability index

Question (b). Which machine should the company select? Give reasons for your answer.