Superior Tasty Soup Limited a fast food company is considering purchasing a new storage machine for £438,700. The company is expecting an annual cash inflow of £123,000 from the sale of its products and an annual cash outflow of £25,500 for each of the six years of the machine’s useful life.
:(a) Calculate using the following investment appraisal techniques, and provide brief recommendations as to the economic feasibility of acquiring the machine:
i.The Payback Period.
ii.The Accounting Rate of Return.
iii.The Net Present Value.iv.
(b) Alternatively, the financial director of Limited is proposing to use 40% the total capital outlay for the above investment to repurchase some of the equity capital and the remaining funds to pay for cash dividends. Ensuring the response draws upon relevant academic research and theories within this highly topical area of financial management, critically evaluate the effects of this proposal on the company.
(c) Critically evaluate the benefits and limitations of each of the differing investment appraisal techniques, ensuring the use of relevant academic literature.
