Kiwanda limited is considering the purchase of a new machine. Two alternatives machines, A and B, which will cost shs 6m and 7m respectively, are available in the market at a cost of 12%. The cash flows after taxation of each machine are as follows; Year Cash flow Machine A Machine B shs shs 1. 600,000 1,800,000 2. 1,800,000 2,400,000 3. 2,000,000 3,000,000 4. 3,000,000 1,800,000 5. 2,400,000 1,600,000 Required: a. Compute the net present value of each machine. b. Assume that each machine represent a project. Compute the Internal rate of return the company expects to earn from each of the two projects. c. Comments on the use of the results obtained in (a) and (b) above in selecting between the two projects.
3. Kiwanda limited is considering the purchase of a new machine. Two alternatives machines, A and B, which will cost shs 6m and 7m respectively, are available in the market at a cost of 12%. The cash flows after
Year Cash flow
Machine A Machine B
shs shs
1. 600,000 1,800,000
2. 1,800,000 2,400,000
3. 2,000,000 3,000,000
4. 3,000,000 1,800,000
5. 2,400,000 1,600,000
Required:
a. Compute the
b. Assume that each machine represent a project. Compute the
c. Comments on the use of the results obtained in (a) and (b) above in selecting between the two projects.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
