GAP Textile Sdn. Bhd.’s current investment policy is to accept only investments that are recoverable within 4 years. Calculate the discounted payback period of Equipment X and Equipment Y if the cost of capital is 12%. Based on the calculated discounted payback period of X and Y, advise the company on which new equipment to purchase if they are mutually exclusive.
GAP Textile Sdn. Bhd.’s current investment policy is to accept only investments that are recoverable within 4 years. Calculate the discounted payback period of Equipment X and Equipment Y if the cost of capital is 12%. Based on the calculated discounted payback period of X and Y, advise the company on which new equipment to purchase if they are mutually exclusive.
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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GAP Textile Sdn. Bhd.’s current investment policy is to accept only investments that are recoverable within 4 years.
Calculate the discounted payback period of Equipment X and Equipment Y if the cost of capital is 12%. Based on the calculated discounted payback period of X and Y, advise the company on which new equipment to purchase if they are mutually exclusive.
Transcribed Image Text:Question 1
GAP Textile Şdn Bhd. is a retail chain specialising in casual clothing. Due to increasing demand, the
management of GAP Textile Şdn, 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:
Equipment X (RM)
(180,000)
12,000
Equipment Y (RM)
(250,000)
Year
5
20,000
The forecasted net operating cashflows generated of the two equipment are given as follows:
Equipment Y (RM)
Equipment X (RM)
40,000
50,000
90,000
70,000
70,000
Year
1
70,000
2
70,000
3
70,000
70,000
4
5
70,000
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