A company is planning to undertake an investment project. The following data have been calculated for two alternatives, A and B: A B Initial Investment outlay ($) 200,000 275,000 Freight charges 20,000 30,000 Set up charges 5,000 7,000 Economic Life (years) 10 10 Liquidation Value at end of economic life($) 12,000 17,000 Other fixed costs ($/yr) 4,000 20,000 Production and sales volume (units/year) 9,000 12,000 Sales Price ($/unit) 15 15 Variable costs ($/unit) 2.45 2.00 Rate of Interest (%/year) 6% 6% 1. Ascertain the preferred project using: a. The profit comparison method. b. The average rate of return method. c. The static payback method 2. Re-evaluate the projects using the Net Present Value. Are the results of the Project selection process the same? If different, what reasons can you offer?
A company is planning to undertake an investment project. The following data have been calculated for
two alternatives, A and B:
A B
Initial Investment outlay ($)
200,000
275,000
Freight charges
20,000
30,000
Set up charges
5,000
7,000
Economic Life (years)
10
10
Liquidation Value at end of economic life($)
12,000
17,000
Other fixed costs ($/yr)
4,000
20,000
Production and sales volume (units/year)
9,000
12,000
Sales Price ($/unit)
15
15
Variable costs ($/unit)
2.45
2.00
Rate of Interest (%/year) 6% 6%
1. Ascertain the preferred project using:
a. The profit comparison method.
b. The average
c. The static payback method
2. Re-evaluate the projects using the
the same? If different, what reasons can you offer?
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