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: 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: 1. Calculate the Payback Period for both proposals. Which proposal fared better? 2. Calculate the ARR for both proposals. Which proposal fared better? 3. Which appraisal method will you use to decide on this product? Explain.
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: 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: 1. Calculate the Payback Period for both proposals. Which proposal fared better? 2. Calculate the ARR for both proposals. Which proposal fared better? 3. Which appraisal method will you use to decide on this product? Explain.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![X
Y
Acquistion cost
Life
Profits after depreciation
Year 1
46,000.00 46,000.00
4
4
6,500.00
4,500.00
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
Profit before depreciation|
Year 1
Year 2
Year 3
Year 4
Scrap value
Payback method
ARR](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2f30c874-9ab9-49f1-8078-5930ad484b58%2F90f2205c-332c-40d7-87fe-1b64df9182aa%2F2tw0gzl_processed.png&w=3840&q=75)
Transcribed Image Text:X
Y
Acquistion cost
Life
Profits after depreciation
Year 1
46,000.00 46,000.00
4
4
6,500.00
4,500.00
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
Profit before depreciation|
Year 1
Year 2
Year 3
Year 4
Scrap value
Payback method
ARR
![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:
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:
1. Calculate the Payback Period for both proposals. Which proposal fared better?
2. Calculate the ARR for both proposals. Which proposal fared better?
3. Which appraisal method will you use to decide on this product? Explain.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2f30c874-9ab9-49f1-8078-5930ad484b58%2F90f2205c-332c-40d7-87fe-1b64df9182aa%2Ft1medbg_processed.png&w=3840&q=75)
Transcribed Image Text: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:
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:
1. Calculate the Payback Period for both proposals. Which proposal fared better?
2. Calculate the ARR for both proposals. Which proposal fared better?
3. Which appraisal method will you use to decide on this product? Explain.
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