XYZ Ltd is considering purchasing a new machine, and the relevant facts concerning two possible choices are as follows:

Machine A

MachineB

Capital expenditure required

£65,000

£60,000

Estimated life in years

4

4

Residual value

nil

nil

Cash flow after taxation each year

£25,000

£24,000

The company’s cost of capital is 10%.

Required

Calculate, for each machine, the payback period, the net present value and the profitability index. State, with reasons, which machine you would recommend.