Based on the Modified Internal Rate of Return calculation, give your recommendation to the management of the company on which new equipment to purchase if they are mutually exclusive. ii)Discuss FOUR (4) weaknesses of using the payback period in appraising capital
GAP Textile Sdn Bhd. is a retail chain specialising in casual clothing. Due to increasing demand, the management of GAP Textile Sdn. Bhd. is considering to purchase a new equipment to increase the production and revenues. Its choice is between Equipment X and Equipment Y. Both equipment have a useful life of 5 years.
The initial cost (cash outlay) for Equipment X is RM180,000 and for Equipment Y is RM250,000 and their respective salvage values at the end of year 5 are given as follows:
|
Year |
Equipment X (RM) |
Equipment Y (RM) |
|
0 |
(180,000) |
(250,000) |
|
5 |
12,000 |
20,000 |
The
|
Year |
Equipment X (RM) |
Equipment Y (RM) |
|
1 |
40,000 |
70,000 |
|
2 |
50,000 |
70,000 |
|
3 |
90,000 |
70,000 |
|
4 |
70,000 |
70,000 |
|
5 |
70,000 |
70,000 |
i)Based on the Modified
ii)Discuss FOUR (4) weaknesses of using the payback period in appraising capital
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