Sigma Pty. Ltd. is evaluating whether to buy pieces of medicalequipment each of which requires an up-front expenditure of $1.5million. The projects are expected to produce the following netcash inflows:
Year Equipment A Equipment B
1 $500,000 $2,000,000
2 $1,000,000 $1,000,000
3 $2,000,000 $600,000
a. What is the internal rate of return for each piece ofequipment?
b. What is the payback period for each machine?
c. What is the net present value of each machine if the cost ofcapital is 10 per cent? 5 per cent? 15 per cent?
d. Should Better Health buy both machines, only one, or none?Explain your answer
