QUESTION 4: BUSINESS DECISIONS [20 MARKS] Suppose that ABC Ltd is considering purchasing one of three new processing machines. Either
machine would make it possible for the company to produce its products more efficiently.
Estimates regarding each machine are provided below:
Original cost
Estimated life
Salvage value
Estimated annual cash inflows
Estimated annual cash outflows
Machine A
$79,000
7 years
Nil
$30,000
$ 7,000
Machine B
$110,000
8 years
Nil
$ 60,000
$ 35,000
Machine C
$244,000
10 years
$30,000
$58,500
$18,500
A. If the projects cannot be repeated, which machine should ABC Ltd choose based on the NPV
criteria at an 8% cost of capital? (9 marks)