rizes the investment as gratifying, ade Example 1. The purchase of a new bus will reduce labour cost for maintenance Rr. 15000 per year. The price of the bus is Rs. 93000 and it's operating costs will exceed those of present equipment by Rs. 250 per month. The salvage value is expected to be 18000 in 8 years. Should the bus be purchased when the current available interest rate

rizes the investment as gratifying, ade Example 1. The purchase of a new bus will reduce labour cost for maintenance Rr. 15000 per year. The price of the bus is Rs. 93000 and it's operating costs will exceed those of present equipment by Rs. 250 per month. The salvage value is expected to be 18000 in 8 years. Should the bus be purchased when the current available interest rate

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. A. Payback period in years B. Payback period reciprocal C. Accounting rate of return on average investment.
XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. Solve for the: A. Payback period in years B. Payback period reciprocal C. Accounting rate of return on initial investment D. Accounting rate of return on average investment.
A firm urgently needs a large printer and will either lease a printer at an end-of-year cost of $ 5000 for a 6 year period, or they will purchase the printer at an initial cost of $50,000. If purchased, the printer will have a zero salvage value at the end of 6- years life. No other costs are to be considered. MARR is 4%. What is the best investment decision on the basis of the internal rate of return. O a. IRR could not be calculated due to no change in cashflow sign Ob. Negative IRR is not justified and is not applied here to make a proper decision C. Lease o d. Buy
XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. A. Accounting rate of return on initial investment B. Accounting rate of return on average investment.
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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
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Your firm is considering the purchase of two alternative machinery: Machine A has an expected life of 2 years, will cost Rs. 75 million, and will produce net cash flows of INR 45 million per year. Machine B has a life of 4 years, will cost INR 100 million, and will produce net cash flows of INR 33 million per year. Your firm plans to use the chosen machine for only 4 years. Inflation in operating costs, machinery costs, is expected to be zero, and the company’s cost of capital is 9%. Which machine is acceptable as the better project using replacement chain method? Will your choice hold if cost of A becomes INR 90 million for second year? What is the equivalent annual annuity cost for each machine and evaluating with this criterion, do you find any difference in your decision on the better machinery, when you had used replacement chain method?