jambo manufacurers ltd iscontemplating the purchase of either of two machines at a cost of sh 155 million and sh 180 million respectively year as follows.
machine A machine B
year cashflow (h.million) cash flow(sh.million) 1
1 55 90
2 35 85
3 (35) 55
4 65 46
5 72 37
6 41
macine A has an estimated salvage value of sh 40 million at the end of year six.machine B would cos JAMBO an estimated sh 10 million to dispose off at the end of year five.jambo had a cost of apitalof 15% per annum.
i) using both the NPV and IRR approaches,advice as to which of the machines ,if any ,it should invest in.
ii)Due to the likelyhood of technlogical changes .jambo would prefer t invest in machines with a payback period not exeedig four years .using the payback approach ,which of the machines ,if any,should jambo invest in?
iii)what are some of the shortcomings of the payback approach to capital project evaluation
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