A company is considering two (2) capital expenditure proposals, X and Y. Both options will generate the new line of product that the company will produce. Both are expected to operate for four (4) years. Only one (1) proposal will be accepted. The following information is provided to you: X Y Acquisition cost P46,000.00 P46,000.00 Life 4 4 Profits after depreciation Year 1 P6,500.00 P4,500.00 Year 2 3,500.00 2,500.00 Year 3 13,500.00 4,500.00 Year 4 -1,500.00 14,500.00 Scrap value 4,000.00 4,000.00 Depreciation is charged on a straight-line basis. Required: Calculate the Payback Period for both proposals. Which proposal fared better? Calculate the ARR for both Which proposal fared better? Which appraisal method will you use to decide on this product?
A company is considering two (2) capital expenditure proposals, X and Y. Both options will generate the new line of product that the company will produce. Both are expected to operate for four (4) years. Only one (1) proposal will be accepted. The following information is provided to you: X Y Acquisition cost P46,000.00 P46,000.00 Life 4 4 Profits after depreciation Year 1 P6,500.00 P4,500.00 Year 2 3,500.00 2,500.00 Year 3 13,500.00 4,500.00 Year 4 -1,500.00 14,500.00 Scrap value 4,000.00 4,000.00 Depreciation is charged on a straight-line basis. Required: Calculate the Payback Period for both proposals. Which proposal fared better? Calculate the ARR for both Which proposal fared better? Which appraisal method will you use to decide on this product?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A company is considering two (2) capital expenditure proposals, X and Y. Both options will generate the new line of product that the company will produce. Both are expected to operate for four (4) years. Only one (1) proposal will be accepted. The following information is provided to you:
|
|
X |
Y |
|
Acquisition cost |
P46,000.00 |
P46,000.00 |
|
Life |
4 |
4 |
|
Profits after |
|
|
|
Year 1 |
P6,500.00 |
P4,500.00 |
|
Year 2 |
3,500.00 |
2,500.00 |
|
Year 3 |
13,500.00 |
4,500.00 |
|
Year 4 |
-1,500.00 |
14,500.00 |
|
Scrap value |
4,000.00 |
4,000.00 |
Depreciation is charged on a straight-line basis.
Required:
- Calculate the Payback Period for both proposals. Which proposal fared better?
- Calculate the ARR for both Which proposal fared better?
- Which appraisal method will you use to decide on this product?
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