Alia company is considering the purchase of a new machine. Two alternative machines X and...
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Accounting
Alia company is considering the purchase of a new machine. Two alternative machines X and Y have been suggested, each having an initial cost of 800,000 SR. Earning after taxation are expected to be as follows:
| Years | Cash Inflows Machine X (SR) | Cash Inflows Machine Y (SR) |
| 1 | 160,000 | 130,000 |
| 2 | 180,000 | 260,000 |
| 3 | 250,000 | 210,000 |
| 4 | 220,000 | 190,000 |
| 5 | 170,000 | 110,000 |
The company has targeted of return on capital of 8% and on this basis, you are required to compare the profitability of the machines and state which alternative you consider financially preferable. The present value of 1 (one) SR at 8% is 0.926, 0.857, 0.794, 0.735, and 0.681 respectively from first to fifth year.
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