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The problem provided is asking to determine the most profitable machine based on the Net Present Value (NPV) method. Let's break down the steps:

### Step-by-Step Approach:
1. **Calculate NPV for both Machine A and Machine B.**
   - The initial cost of the machines is ₹4,00,000 with an additional ₹30,000 of working capital needed at the end of the first year.
   - The target return (discount rate) is 10%.

2. **Formula for NPV:**
   \[
   \text{NPV} = \sum \frac{\text{Cash Flow}_t}{(1 + r)^t} - \text{Initial Investment}
   \]
   Where:
   - \( t \) is the year,
   - \( r \) is the discount rate (10% or 0.10),
   - \(\text{Cash Flow}_t\) is the expected cash flow in year \(t\).

3. **Details to keep in mind:**
   - The initial investment is ₹4,00,000 for both machines.
   - Additional working capital of ₹30,000 needs to be considered in year 1.

### I will now calculate the NPVs for both Machine A and Machine B using the provided cash flows and the discount rate.

Let me perform the calculation.

PQR Ltd. is considering the purchase of a new machine. Two alternative machines have been suggested, each costing ₹4,00,000 and requiring ₹30,000 as additional working capital at the end of the 1st year. EAT (Earnings After Tax) are expected to be as follows:

Machine A: Year 1 - ₹40,000, Year 2 - ₹1,20,000, Year 3 - ₹1,60,000, Year 4 - ₹2,40,000, Year 5 - ₹1,60,000, Total - ₹7,20,000
Machine B: Year 1 - ₹1,20,000, Year 2 - ₹1,60,000, Year 3 - ₹2,00,000, Year 4 - ₹1,20,000, Year 5 - ₹80,000, Total - ₹6,80,000

The company has a target return on capital of 10%. You are required to select the most profitable machine using the NPV method.

Analyze the investment decision between Machine A and Machine B using the Net Present Value (NPV) method. Learn how to apply discounting techniques to cash flows and evaluate profitability in capital budgeting, suitable for finance students and professionals.

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