Answered: Evaluate each machine, using the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.

HAVE YOUR MO
CREATION
VINTAGE
ARE YOU GOING FOR AN EXPO
HAVING A GROUNDBEAKING O
COMMISSIONING CEREMONY C
DOING OPEN MARKETING?
LET CREATION DYNAMICS MAH
MODELS OF YOUR PROJECTS F
AND INTERNAL
CONTACT US FOR A
+260 977897653, +260 969167167
A www.creationdynamicszambia.com

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