ABC steel plant industry plans to manufacture a product. The product needs a special component. The industry has reviewed that the special component can be produced in the plant or bought in. An investment is required to start the production of the component for which two mutually exclusive projects A and B representing different production processes are available. The alternative option is to buy in from another company representing project C. The details of projects A and B are given in Table 3: (i) Using the information from table 3 and Discount Cash Flow criteria, calculate Pay Back Period (PBP), Account Rate of Return (ARR), Net Present Value (NPV) and Internal Rate Return (IRR) for project A & Project B if the industry plans to sale the unit cost of RO 350. (ii) Using the annual cost data from table 3, determine which project incurs less cost if the industry considers producing 7,500 units per year. (iii) Using the table 3, determine the Break-Even quantity and margin of safety (units and value) If the company sells 8,000 units of new product per year at a price of RO 50 per unit.
Q3:
ABC steel plant industry plans to manufacture a product. The product needs a special component. The industry has reviewed that the special component can be produced in the plant or bought in. An investment is required to start the production of the component for which two mutually exclusive projects A and B representing different production processes are available. The alternative option is to buy in from another company representing project C. The details of projects A and B are given in Table 3:
(i) Using the information from table 3 and Discount Cash Flow criteria, calculate Pay Back Period (PBP), Account
(ii) Using the annual cost data from table 3, determine which project incurs less cost if the industry considers producing 7,500 units per year.
(iii) Using the table 3, determine the Break-Even quantity and margin of safety (units and value) If the company sells 8,000 units of new product per year at a price of RO 50 per unit.
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