A company is considering two alternative layout designs. Alternative 1 requires an initial investment of 100,000 Birr, will result in 20,000 Birr annual cost savings for the next ten years, and is expected to have salvage value of 20,000 Birr at the end of ten years. Alternative 2 requires an 80,000 Birr initial investment, will result in 16,000 Birr annual cost savings, and will have no salvage value after ten years. The interest is 10%. Which alternative is best using the payback period method? Which alternative is best using the NPV method?
A company is considering two alternative layout designs. Alternative 1 requires an initial investment of 100,000 Birr, will result in 20,000 Birr annual cost savings for the next ten years, and is expected to have salvage value of 20,000 Birr at the end of ten years. Alternative 2 requires an 80,000 Birr initial investment, will result in 16,000 Birr annual cost savings, and will have no salvage value after ten years. The interest is 10%. Which alternative is best using the payback period method? Which alternative is best using the NPV method?
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
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A company is considering two alternative layout designs. Alternative 1 requires an initial investment of 100,000 Birr, will result in 20,000 Birr annual cost savings for the next ten years, and is expected to have salvage value of 20,000 Birr at the end of ten years. Alternative 2 requires an 80,000 Birr initial investment, will result in 16,000 Birr annual cost savings, and will have no salvage value after ten years. The interest is 10%.
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Which alternative is best using the payback period method?
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Which alternative is best using the
NPV method?
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